$1.$ The optimal capital structure when the firm pays corporate taxes and there is no risk of bankruptcy

a$\mathrm{.}100\%$ equity

b$.50\%$ Debt and $50\%$ Equity

c$.$ Cannot be determined

d$.100\%$ Debt

e$.$ at D$/$E ratio where the debt is at an optimal

$2.$ At what point, the value of the firm will start to decreases and the WACC will start to increases as more debt is$?$

a$.$ the additional value of the interest tax shield will be offset by the increases in expected bankruptcy cost

b$.$ The increase in the expected bankruptcy cost will be offset by the additional value of the interest tax shield

c$.$ Cost of equity capital starts going up due to more leverage

d$.$ cost of debt goes up due to more debt

$3.$ The discount rate used to appraise capital investment decisions is a measure of:

a$.$ The opportunity cost of capital of all businesses in the same industry

b$.$ the opportunity cost of capital of the business

e$.$ The current inflation rate

d$.$ The current bank interest rate

$4.$ Which of the following Statement is False?

a$.$ The issuing of shares to raise finance can be expensive

b$.$ Sorrowing can increase the risk that a company & shareholders face

c$.$ Retained profits represent a free$/$cheap source of funds

d$.$ Retained profit is the only source of business funds

e$.$ a and b

f$.$ a$.$ b and c

g$.$ none of the above

$5.$ As the amount of $\_\_\_\_\_\_\_$ increases the present value of$\_\_\_\_\_\_\_\_.($in a world with tax but no bankruptcy cost$)$

a$.$ debt net tax$-$shield benefits of debt increase

b$.$ common equity, bankruptcy and agency costs increase

c$.$ debt, net tax$-$shield benefits of debt decrease

d$.$ common equity, net tax$-$shield benefits of debt decrease

$6.$ Which of these is NOT an assumption behind use of WACC?

A$.$ The project should be marginal

B$.$ The project should produce a return at least equal to the source of finance used

C$.$ The financing of the project should not change the company's capital structure

D$.$ The project should have the same systematic risk as the average for the company

$7.$ The interest tax benefit:

A$.$ Increases the value of debt

B$.$ Reduces the value of debt

C$.$ lncreases the value of unlevered firm

D$.$ Reduces the value of equity

E$.$ None of the above

$8.$ A firm's terminal value is nothing but $*$

a$.$ total accumulation of risk adjusted all possible future cashflows

b$.$ PV of perpetual CF at final year of forecast

c$.$ Summation of all returns

d$.$ Net Profit divided WACC

e$.$ PV of the terminal value

$9.$The WACC is used to $\_\_\_\_\_\_\_\_\_$the expected cash flows when the firm has $\_\_\_\_\_\_\_\_\_\_.$

a$.$ Discount, only shares in the capital structure

b$.$ Discount; short term financing on the balance sheet

C$.$ Increase; debt and equity in the capital structure

d$.$ Decrease, short term financing on the balance sheet

e$.$ None of the above.

$10.$ In order to calculate the future value of future projected cash flows, what do companies use

usually do not use?

a$.$ WACC

b$.$ IGR or SGR

c$.$ Risk free rate

d$.$ Inflation

e$.$ a and c

f$.$ all of the above

$11.$ If my perpetual growth rate is high, all else remaining equal, I should have a higher terminal

value$*$

a$.$ True. b$.$ False

$12.$ My expected EBIT is greater than my breakeven EBIT. In this case a loan proposal can be

accepted

a$.$ True, b$.$ False

If I want to change my levered cash flow to un levered cash flow then I will need to $*$

a$.$ Take a loan that will make my own personal debt$-$equity $50$:$50$

b$.$ Take as much loan needed

c$.$ Lend money with proportion to my current debt ratio.

d$.$ Take a loan based on the desired cash flow and its respective capital structure

$14.$ If a company has debt in their capital structure, which of the following should they use for Re

calculation using CAPM?

a$.$ Equity beta only

b$.$ Asset beta only

c$.$ un levered beta only

d$.$ none of the above

$15.$ What is the enterprise value of a company that has a total market cap of $1\mathrm{.}75$ million, current

liabilities amount $250,000$ and $500,000$ USD long$-$term debt still outstanding and cash balance of

$200,000?$

a$.1,200,000$

b$.1,750,000$

c$.2,000,000$