1) Which of the following statements is FALSE? A) We begin the capital budgeting process by determining the incremental earnings of a project. B) The marginal corporate tax rate is the tax rate the firm will pay on an incremental dollar of pre-tax income. C) Investments in plant, property, and equipment are directly listed as expense when calculating earnings D) The opportunity cost of using a resource is the value it could have provided in its best alternative use. 2) CathFoods will release a new range of candies which contain anti-oxidants. New equipment to manufacture the candy will cost $4 million, which will be depreciated by straight-line depreciation over six years. It is expected that the range of candies will bring in revenues of $6 million per year for five years with production and support costs of $1.5 million per year. If CathFoods' marginal tax rate is 35% what are the incremental earnings in the second year of this project? A) $2.492 million B) $2.100 million C) $3.833 million D) $1.342 million 3) Historically, stocks have delivered areturn on average compared to Treasury bills but h experienced A) higher, higher B) higher, lower C) lower, higher D) lower, lower fluctuations in values. 4) Suppose you invested $59 in the Ishares Dividend Stock Fund (DVY) a month ago. It paid a div of 0.38 today and then you sold it for $66. What was your return on the investment? 3) 8.76% ) 13.76% ) 12.51% ) 10.01% 5) Which of the following statements is FALSE A) Without trading, the portfolio weights will decrease for the stocks in the portfolio whose returns are above the overall portfolio return. B) The expected return of a portfolio is simply the weighted average of the expected returns of the investments within the portfolio. ) Portfolio weights add up to 1 so that they represent the way we have divided our money between the different individual investments in the portfolio. D) A portfolio weight is the fraction of the total investment in the portfolio held in an individual investment in the portfolio. 6) You expect General Motors (GM) to have a beta of 1.9 over the next year and the beta of Exxon Mobil (XOM) to be 1.5 over the next year. Also, you expect the volatility of General Motors to be 35% and that of Exxon Mobil to be 50% over the next year, which stock has more systematic risk? which stock has more total risk A) XOM, GM B) GM, XOM C) GM, GM D) XOM, XOM 7) For an unlevered firm, the cost of capital can be determined by using the A) yield on the traded debt B) Capital Asset Pricing Model C) dividend yield D) preferred stock yield 8) Your estimate of the market risk premium is 9%. The risk-free rate of return is 41% and General Motors has a beta of 1.8. What is General Motors' cost of equity capital? A) 20.3% B) 18.3% C) 19.3% D) 21.3%