20. The operating cash flow of a cost-cutting project: A) is equal to the depreciation tax shield. B) is equal to zero because there is no incremental sales. ) can only be analyzed by projecting the sales and costs for a firm's entire operations. D) includes any changes that occur in the current accounts. E) can be positive even though there are no sales. 24. Assume the firm has a debe-equity ratio of 0.4 and uses the capital asset pricing model to determine its cost of equity. As a result, the company's weighted average cost of capital: A) would be unaffected if the dividend discount model were applied instead to determine the fim's cost of equity. B) will be unaffected by changes in the firm's market risks C) is affected by the firm's rate of growth projections. D) is dependent upon a reliable estimate of the market risk premium. E) implies that the firm pays out all of its earnings as dividends to its shareholders. 21. The principle of diversification tells us that: A) spreading an investment across many diverse assets will eliminate some of the total risk. B) spreading an investment across five diverse companies will not lower the total risk. C) spreading an investment across many diverse assets will eliminate all of the systematic risk D) concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk. E) concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk. 25. The firm is analyzing a project that currently has a projected NPV of zero. Which one of the following changes that the firm is considering is most likely to make the NPV positive? Consider cach change independently. A) Increase the variable cost per unit B) Increase the amount of the initial investment in net working capital C) Decrease the fixed cost per period D) Decrease the sales quantity E) Decrease the sales price 22. The firm purchased S300,000 of fixed assets that are classified as three-year property for MACRS. The MACRS rates are 0.3333, 0.4445, 0.1481, and 0.0741 for Years 1 to 4, respectively. The firm's applicable corporate tax is 21%. What is the amount of the depreciation tax shield in Year 3? A) $35.099.7 B) 828,003. C) $20.997.9 D) 59,330.3 E) $4,668.3 23. The firm is an all-equity firm with assets worth $500 million and 100 million shares outstanding. It plans to raise $200 million and use these funds to repurchase shares. The firm's marginal corporate tax is 21%, and it plans to keep its outstanding debt equal to $200 million permanently. What is the value of equity for the leveraged firm? Assuming no financial distress or bankruptcy cost A) SS42 million B) S458 million C) $342 million D) $300 million E) $158 million
