True and False

1. Firms that face low levels of business risk can better afford more financial risk.

2. We would say that a firm with the high variability of EBIT has high levels of business risk.

3. Excel offers the RATE(NPER, PMT, PV, FV, TYPE, GUESS) function that will solve for the interest rate.

4. The risk-free rate of interest (Rf) serves as the base rate of interest and it is defined as the rate of return on a security with the highest risk.

5. According to the earnings model, the future earnings growth rate will be driven by the rate of return that is generated by the reinvested earnings (the ROE), and therefore if we let b = the retention ratio and r = the return on equity, then the growth rate: g = br.