34. Because of improvements in forecasting techniques, estimating the cash flows associated with a project has become the easiest step in the capital budgeting process.

	a.	True
	b.	False

35. Estimating project cash flows is generally the most important, but also the most difficult, step in the capital budgeting process. Methodology, such as the use of NPV versus IRR, is important, but less so than obtaining a reasonably accurate estimate of projects' cash flows.

	a.	True
	b.	False

36. Different borrowers have different risks of bankruptcy, and bankruptcy is costly to lenders. Therefore, lenders charge higher rates to borrowers judged to be more at risk of going bankrupt.

	a.	True
	b.	False

37. A firm's business risk is largely determined by the financial characteristics of its industry, especially by the amount of debt the average firm in the industry uses.

	a.	True
	b.	False

38. Financial risk refers to the extra risk stockholders bear as a result of using debt as compared with the risk they would bear if no debt were used.

	a.	True
	b.	False

39. As the text indicates, a firm's financial risk has identifiable market risk and diversifiable risk components.

	a.	True
	b.	False

Silverman Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost.

WACC:	8.75%
Year	0	1	2	3	4
CFS	$1,100	$375	$375	$375	$375
CFL	$2,200	$725	$725	$725	$725

	a.	$32.12
	b.	$35.33
	c.	$38.87
	d.	$40.15
	e.	$42.16

Farmer Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the shorter payback, some value may be forgone. How much value will be lost in this instance? Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost.

WACC:	10.25%
Year	0	1	2	3	4
CFS	$950	$500	$800	$0	$0
CFL	$2,100	$400	$800	$800	$1,000

	a.	$24.14
	b.	$26.82
	c.	$29.80
	d.	$33.11
	e.	$36.42