United Merchants has a beta of 1.0 and very high firm-specific risk. If the expected retur on the market is 20 percent, the expected return on United will be: a) 10 percent if the risk-free rte is 10 percent b) 20 percent. c) more than 20 percent because of the high firm-specific or unique risk a indeterm mate unless vou also know the risk-free rate 2) We have discussed the fact that the cost of equity for a firm must always be higher than its cost of debt before tax. Which of the following factors support this cost relationahip? a) debtholders have a residual claim on the income and the assets of the firm b interest on debt is tax deductible and thus creates tax savingo c) interest and dividends are both tax deductible d) equity holders have a residual claim on the income and the assets of the firm 3) Which of the following would decrease the after tax NPV of a project? a) A shift from accelerated to straight line depreciation b) A decrease in the company tax rate c) An increase in the sale proceeds of the old machine d) A decrease in the hurdle rate associated with the project 4) In estimating the cost of debt, we argued that this cost is a combination of a risk-free rate and a risk premium. The risk premium for the cost of debt depends upon: a) the beta for the firm's bonds. b) the beta for the firm's stock. c) the risk premium for the market portfolio of stocks and bonds. d) the credit rating and default risk of the firm. 5) The importance of being able to measure systematic or market risk is that: a it is necessary in order to measure the total risk of an asset b) the risk premium depends only on the company specific risk of an investment. c) this is the only type of risk that is rewarded. d) the risk premium depends on both systematic and unsystematic risk.