Please answer all Questions 7,8,9, and 10. Thanks.

Question 7

With its current financial policies, Flagstaff Inc. will have to issue new common stock to fund its capital budget. Since new stock has a higher cost than reinvested earnings, Flagstaff would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?

	A.	Increase the proposed capital budget.
	B.	Reduce the percentage of debt in the target capital structure.
	C.	Reduce the amount of short-term bank debt in order to increase the current ratio.
	D.	Increase the dividend payout ratio for the upcoming year.
	E.	Increase the percentage of debt in the target capital structure.

Question 8

Laramie Labs uses a risk-adjustment when evaluating projects of different risk. Its overall (composite) WACC is 10%, which reflects the cost of capital for its average asset. Its assets vary widely in risk, and Laramie evaluates low-risk projects with a WACC of 8%, average-risk projects at 10%, and high-risk projects at 12%. The company is considering the following projects:Project Risk Expected ReturnA High 15%B Average 12%C High 11%D Low 9%E Low 6%

	A.	A, B, C, and D.
	B.	A, B, and D.
	C.	A, B, and C.
	D.	A, B, C, D, and E.
	E.	A and B.

Question 9

Puckett Inc. risk-adjusts its WACC to account for project risk. It uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Puckett accept, assuming that the company uses the NPV method when choosing projects?

	A.	Project A, which has average risk and an IRR = 9%.
	B.	Project B, which has below-average risk and an IRR = 8.5%.
	C.	Without information about the projects' NPVs we cannot determine which project(s) should be accepted.
	D.	Project C, which has above-average risk and an IRR = 11%.
	E.	All of these projects should be accepted.

Question 10

Which of the following statements is CORRECT?

	A.	If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the higher IRR probably has more of its cash flows coming in the later years.
	B.	To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the WACC to find the PV.
	C.	If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.
	D.	The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. However, the MIRR method assumes reinvestment at the MIRR itself.
	E.	For a project with normal cash flows, any change in the WACC will change both the NPV and the IRR.