4. A firm's debt ratio is 40%. Currently, its interest expense is $500,000 on $5 million of debt. Tax rate is 40%. If the firm's ROA is 6%, what is the firm's ROE? Hint: use DuPont.

A. 4.0%

B. 5.8%

C. 10%

D. none of the above

5. A company has the following balance sheet. How much of the firm's capital is investor-supplied?

Cash	$10	Accounts payable	$20
Short term investments	20	Accruals	30
Accounts receivable	30	Notes payable	20
Inventory	40	Current liabilities	$70
Current assets	$100	Long term debt	30
Net fixed assets	80	Common stock	10
		Retained earnings	70
Total assets	$180	Total liabilities + equity	$180

A. $130

B. $40

C. $110

6. Last year, the free cash flow of Mac Engineering Corp was $ 1million (i.e., FCFo = $1 million). You estimate that the company's FCF will grow by 20 percent this year (i.e., FCF1 = $1.2 million) and 15 percent next year. After two years, its free cash flow is expected to grow at a constant rate of 5 percent. The cost of capital is 12%. Calculate the firm's value of operations (VOP)

A. $12.23

B. $16.91

C. $18.67

D. none of the above

7. RISK & RETURN. Which of the following is an appropriate measure of the total risk of a single asset? And which risk measure is appropriate for a stock that is part of a well-diversified portfolio?

A. Variance; correlation coefficient

B. Standard deviation; correlation coefficient

C. Standard deviation; beta

D. None of the above is an accurate response to the two questions

8. RISK & RETURN. For this and the next 1 questions: The following is a market model regression output where Y = GE's stock return and X = S&P 500 index return. Use the data to answer the questions that follow.

Regression Statistics
Multiple R	0.7614
R Square	0.5797
Adjusted R Square	0.5745
Standard Error	0.0459
Observations	83
ANOVA
	df	SS	MS	F	P-value
Regression	1	0.2349	0.2349	111.6984	0.0000
Residual	81	0.1703	0.0021
Total	82	0.4052
	Coeff.	Std. Err.	t Stat	P-value
Intercept	0.0076	0.0052	1.4547	0.1496
SP500	1.1653	0.1103	10.5687	0.0000

What proportion of the total variation in GE stock performance is accounted for by the changes in the market?

A. About 76%

B. About 58%

C. About 1.16%

D. None of the above

9. The standard deviation of the market index is 4.59% and the standard deviation of GE is 7.03%. Given this information, what is the covariance of GE and the market index?

A. .002457

B. .001905

C. none of the above