True / False (20 points in total if false, briefly explain)

1. A firm's cost of capital can be used in valuation of every new project they encounter, regardless of its risk.

2. The security market line plots the historic relationship between returns on an individual stock and the market portfolio.

3. Changing the discount rate is equivalent to adjusting expected cash flows as a method of accounting for risk.

4. The greater the DOL, the greater the protection against operating losses during economic downturns.

5. If a project permits a reduction in the level of working capital, this reduction is assumed to increase cash flows.