Question 1

All else held constant, which one of these is most apt to increase the WACC of a leveraged firm?

a. a decrease in the dividend growth rate

b. a decrease in the tax rate

c. a decrease in a firms equity beta

d. an increase in the risk-free rate when the equity beta > 1

e. an increase in the weight of debt

Question 2

The profitability index of an investment project is the ratio of the: a. present value of the Time 1 and subsequent cash flows to the initial cost. b. net present value of the projects cash outflows divided by the net present value of its inflows. c. internal rate of return to the current market rate of interest. d. net present value of every project cash flow to the initial cost. e. average net income to the average investment.