22.

The Pecking Order Theory of capital structure implies a unique optimum capital structure.

• True
• False

23.

A company's beta (from the CAPM) is affected by its capital structure.

• True
• False

28.

The higher the opportunity cost of capital the higher the NPV.

• True
• False

34.

What is the expected return on a risky investment wherethe risk free rate is 5.1%;

the investment's beta is 1.4;

the equity market risk premium is 5.0%; and

the cost of debt is 4.5%.

• 10.8%
• 9.6%
• 12.1%
• 9.2%

What is the present value of a growing perpetuity that makes a payment of $100 in the first year, which thereafter grows at 3% per year? Apply a discount rate of 7%.

• $ 2,000
• $ 3,500
• $ 2,500
• $ 4,000

36.

Share repurchases and dividend payouts are most likely to differ in their

• effects on a firm's capital structure.
• effects on corporate taxes.
• effects on corporate cash flow.
• effects on shareholders' personal taxes.

37.

Which of the following ratios appears on a common-size balance sheet?

I. Debt to asset ratio

II. Net working capital to total assets

III. Net profit margin

• I , II, III
• I only
• I and III
• III only

A company has net working capital of $0, current liabilities of $25 and total assets equal to $100. What is its current ratio?

• 0.0
• 1.0
• 0.5
• 4.0

Which is a commonly used proxy for the "risk-free rate"?

• The average historical interest rate on long-term government bond
• The current market rate interest rate on a government-insured savings account
• The current yield to maturity on a long-term government bond
• The rate of return on a low volatility stock

An increase in financial leverage generally results in a higher return on equity (ROE).

• True
• False

A perpetuity is a stream of cash flows that lasts forever.

• True
• False

A company has net income of $20,000 and a tax rate of 35 percent. Its total debt is $25,000, with principal payments of $5,000 due at the end of each year and an annual interest rate of 8%. What will be the company's interest tax shield in the upcoming year?

• $8,750
• $700
• $9,450
• $2,450

The beta for the market as a whole equals 1.0.

• True
• False

45.

You are trying to decide whether to accept or reject a one-year project. The project is estimated to generate $5,000 in incremental gross profit, which includes $200 in depreciation. Incremental SG&A expense is $400. At a 35% tax rate, the after-tax incremental cash flow is:

• $2,990
• $3,190
• $3,250

• $3,510