MULTIPLE CHOICE - TRUE AND FALSE QUESTIONS

PART A: TRUE OR FALSE. USE THE ANSWER SHEET PROVIDED BELOW L In calculiating the cost of capital, a company should assume that cach dollar of capital is oktained in accorndance with its target capital structure. 2. Ira company is financed with only debt and common equity, and if its oquity multiplier is 3.0, then its 2/3. .The minimum growth rate that a company can achieve with no access to external capital is its sustainable growth rate 4 Both the intemal rate of retum (IRR) and the net present value (NPV) assume that a project's cash will be reinvested at the weighted average cost of capital (WACC) 5. Determining whether a company's financial position is improving or deteriorating requires an analysis ratios that examines more than one year of data. Trend analysis is one method of measuring changes in a compary's performance over a longer period of time. 6. The component costs of the weighted average cost of capital are market-determined variables that are based on investors" required returns. 7. Even if a company uses short-term debt as a permanent source of financing, it should be excluded in the calculation of the weighted average cost of capital (WACC). & Ifa company has a bistory of high Economic Value Added (EVA) numbers each year, and if investors expect this situation to continue, then its market/book ratio and Market Value Added (MVA) are both ikely to be below average 9. A positive value for additional funds needed (AFN) indicates that retained earnings and spontaneous liabilities can finance the additional assets needed without any external capital. 10. One of the necessary steps in the financial planning process is a forecast of financial statements under 11. Free cash flows are discounted at the weighted average cost of capital when calculating the value of 12. Benchmarking is the process of comparing a particular company with a group of similar successful alternative scenarios. This enables an analysis that projects profits and financial ratios operations in the corporate valuation model. companies