1. True or False Changing capital structure creates value only if it improves cash flows or raises the cost of capital.

2. How can an acquisition create value? By increasing cash flow how?

3. For publicly traded companies, which risk is reflected in the cost of capital? Pick one (non-diversifiable risk or diversifiable risk)

4. True or False Diversifiable risk is the risk that remains after diversification.

5. True or False Managers should attempt to diversify risks because that is what the average well diversified shareholder wants from the company.

6. True or False Most managers (out of self-preservation) tend not to take cash flow risk that has a measurable probability of bankruptcy that the company cannot survive in the short run.

7. True or False When the faced with investing cash at low rates or return (lower than the cost of capital) often managers use share repurchases to avoiding value destruction.

8. With respect to value creation, define financial engineering.

9. When the intrinsic value of the stock is (greater than or less than) the market price, the manager should repurchase the companys stock. Pick one.