Namet 33. An increase in the debt ratio will generally have no effect on which of these items? a. Total risk. b. Market risk. c. The firm's beta. d. Business risk 34. Which of the following statements is CORRECT? a Using accelerated depreciation rather than straight line normally has the effect of speeding up cash flows and thus increasing a project's forecasted NPV ince depreciation is a cash expense, the faster an asset is depreciated, the lower the projected NPV from investing in the asset. Corporations must use the same depreciation method for both stockholder reporting and tax purposes Using accelerated depreciation rather than straight line normally has the effect of slowing down cash flows and thus reducing a project's forecasted NPV c. d. 35. Myron Gordon and John Lintner belieye that the required return on equity increases as the dividend payout ratio is lowered. Their argument is based on the assumption that a. investors view dividends as being less risky than potential future capital gains b. investors prefer a dollar of expected capital gains to a dollar of expected dividends because of the lower tax rate on capital gains. e. d. investors require that the dividend yield plus the capital gains yield equal a constant investors are indifferent between dividends and capital gains. 36. Which of the following statements is CORRECT? The capital structure that minimizes the firm's weighted average cost of capital is also the capital structure that maximizes its earnings per share. If a firm finds that the cost of debt is less than the cost of equity, increasing its debt ratio must reduce its WACC. The capital structure that minimizes a firm's weighted average cost of capital is also the capital structure that maximizes its stock price. A firm can use retained earnings without paying a flotation cost. Therefore, while the cost of retained earnings is not zero, its cost is generally lower than the after-tax cost of debt. a. b. c. d. 37. In the real world, dividends a. fluctuate more widely than earnings. b. tend to be a lower percentage of earnings for mature firms. c. are usually set as a fixed percentage of earnings, eg, at 40% of earnings, so ifEPS $2.00, then DPS would equal $0.80.Once the percentage is set, then dividend policy is on "automatic pilot" and the dividend actually paid depends strictly on earnings d. are usually more stable than earnings. Which of the following is NOT a relevant cash flow and thus should NOT be reflected in the ana capital budgeting project? a. Changes in net operating working capital. b. Shipping and installation costs for machinery acquired 38. c. d. e. Cannibalization effects. Opportunity costs. Sunk costs that have been expensed for tax purposes
