M&M Proposition I with tax and no bankruptcy costs supports the theory that:

	a.	there is a positive linear relationship between the amount of debt in a levered firm and its value
	b.	the value of the firm decreases as total debt increases because of the interest expense
	c.	the value of an levered firm is equal to the value of a unlevered firm plus the value of the interest tax shield
	d.	all of the above

Assume the financial breakeven level of output is 850 units and if McGilla expects an annual sale of 900 units, shall McGilla accept this project?

	a.	Yes
	b.	No
	c.	Cannot be determined

The cost of capital:

	a.	is primarily dependent on the source of the funds not the use
	b.	remains constant for all projects sponsored by the same firm
	c.	will decrease as the risk level of a firm increases
	d.	depends on how the funds are going to be utilized

McGilla has decided to sell a new line of golf clubs. The clubs will sell for $1,500 per set (i.e., per unit), have a variable cost of $600 per set and fixed costs each year will be $500,000. The plant and equipment required will cost $1.1 million and will be depreciated straight-line to zero book value over 10-year life. If the required return on the project is 12 percent and tax rate is zero (i.e.,ignore taxes):

How many units, at a minimum, must McGilla sell before the projects NPV becomes negative?

	a.	954 units
	b.	835 units
	c.	772 units
	d.	702 units