1.1. Which item should be included on cash flow estimation in capital budgeting analysis? a. interest b. sunk cost c. depreciation d. cannibalization 1.2. Other things held constant, which of the following event is most likely to increase WACC? a. increase tax rate b. increase stock price c. increase in the use of debt d. increase in dividend payout ratio 1.3. Which of the following is not a means by which ownership implies corporate control? a. appointing a CEO b. proxy fight c. preemptive right d. classified stock 1.4. What is a bond that has higher coupon rate than original bond without its provision? a. callable bond b. convertible bond c. sinking fund bond d. bond with warrant 1.5. Which of the following statement is false about bond? a. At maturity, the value of any bond is equal to its par value b. A long-term zero coupon bond have a very high level of reinvestment risk c. If YTM of a bond is higher than coupon rate when it is issued, it is a discount bond d. Interest rate risk is the risk a decline in a bond's price due to an increase in interest rates 1.6. Which project should be accepted? - Firm A with composite WACC of 10% has three divisions, A, B, and C being equal size. - Division A, B, and C have their WACC of 8%,9%, and 13% respectively. - Division A, B, and C are considering projects with expected returns of 9%,11%, and 12% a. A b. A and B c. B, and C d. C 1.7. Which of the following statement regarding operating and financial leverage is false? a. A financial leverage increases coefficient of variation b. The higher a firm's operating leverage, the higher its business risk c. An expected EPS rises continuously as financial leverage increases d. For optimal capital structure, it need to balance a positive and negative effect of leverage 1.8. A firm has $20 million assets. The firm raises funds of $10 million for new project. If the current capital structure of debt, preferred stock, and common equity is 1:1:8 and the optimal capital structure is 2:1:7, what is its target capital structure of debt, preferred stock, and common equity