1. The calculation of the yield of a bond that is priced at par requires knowledge of the maturity of the bond. True or False

2. The higher the balloon payment at the end of the loan, the smaller is the total periodic (interest and principal) payment(s) paid in each period except for the last period of the loan. True or False

3. If the firm has no debt and therefore does not incur any interest expense, then the net income of the firm is equivalent to the cash flow of the firm. True or False.

4. Debentures have first lien on a set of assets of the firm. True or False.

5. The Effective Annual Yield is usually lower than the Bond Equivalent Yield. True or False

6. According to the CAPM, if the beta of debt equals zero, the expected return of risky debt will equal the risk free rate. True or False.

7. IRR and NPV can provide opposite profitability rankings of mutually exclusive projects. True or False.

8. Ceterus Paribus (i.e., holding everything else constant), as operating risk of the firm increases, the optimal level of leverage should increase. True or False.

9. Assume that a firm needs external financing. The less important flexibility is to the manager with respect to responding to the strategic moves of its competitors, the more likely she will use debt. True or False

10. Assume you are considering two mutually exclusive projects. Project A has a 5 year life and Project B has a 7-year life. The projects are not renewable. The best project is the one with the highest annual equivalent cash flow. True or False

11. As leverage increases, stockholder will prefer less risky projects True or False

12. The optimal financing decision is one that minimizes the ATWACOC True or False