Plan I (All-equity or No Debt Plan)	Plan II (Levered Plan or Plan with debt)
Shares outstanding = 240,000 shares Debt = $0	Shares outstanding = 160,000 shares Debt = $1 million @ interest rate = 10%

Calculate the EPS under each plan if EBIT is $200,000.

	a.	$2.25; $0.63
	b.	$0.83; $0.63
	c.	$0.83; $1.93
	d.	$2.25; $1.93

When a firm develop a WACC for individual projects (that has different risk level than overall firm) by adjusting WACC up or down based on the risk level of the project, the firm is utilizing a _____ approach.

	a.	capital adjustment
	b.	subjective
	c.	relative cost of capital
	d.	pure play

Conducting sensitivity analysis helps managers see the:

	a.	impact of an individual variable on the outcome of a project
	b.	possible range of market prices for their stock over the life of a project
	c.	potential range of outcomes (NPVs) from a proposed project
	d.	changes in long-term debt over the course of a proposed project

General Electrics Corporation (which makes consumer and industrial electronic products) is wondering if it should expand into the automobile business. According to pure play approach, the appropriate cost of capital to evaluate GEs proposed expansion project is:

	a.	The cost of capital of General Electrics
	b.	The cost of capital of an automobile company
	c.	The cost of capital of an consumer electrics company
	d.	The cost of capital of an energy business