1. Whenvaluingapreferredstock,thetypeofsecuritythatwetreatthepreferredstocklike,forvaluationpurposes,is

   abond.

   aperpetuity.

   acommonstock.

   aTreasurybill.

3. Whichofthefollowingisanexampleofsystematicrisk?

   		Facebookpostslowerthanexpectedearnings.
   		Intelannouncesrecordearnings.
   		Thenationaltradedeficitishigherthanexpected.
   		AmericanAirlinesmechanistsgoonstrike.

5. Holding all other things constant, which of the following represents a cash outflow for a firm?

   		The company sells a machine.
   		The company acquires inventory.
   		The company receives a bank loan.
   		The company increases accounts payable.

The capital budgeting process involves

identifying potential investments and estimating the incremental cash inflows and outflows of cash associated with each investment.

analyzing and prioritizing the investments utilizing various decision criteria.

implementing and monitoring the selected investment projects.

estimating a fair rate of return on each investment given its risk.

all of the above

1. ThorleyInc.isconsideringaprojectthathasthefollowingcashflowdata.Whatistheproject'sIRR?

   Year	0	1	2	3	4	5
   Cashflows	-$1,075	$325	$325	$325	$325	$325

   15.57%

   12.14%

   16.50%

   19.46%

   16.97%

3. Capital budgeting must be placed on an incremental basis. This means that __________ must be ignored and _________ must be considered.

   		sunk cost; opportunity cost
   		sunk cost; financing cost
   		cannibalization; opportunity cost
   		opportunity cost; net working capital

5. PorterInc'sstockhasanexpectedreturnof10.75%,abetaof1.25,andisinequilibrium.Iftherisk-freerateis5%,whatistheexpectedmarketriskpremium?

   		5.15%
   		4.28%
   		4.32%
   		4.60%
   		4.55%

Taxes impact the WACC calculation because:

Dividends paid on common stock are tax deductible

Dividends paid on preferred stock are tax deductible

Interest paid on debt is tax deductible

Both (a) and (c) are true

All of the above

1. YouwerehiredasaconsultanttoBubbleCompany,whosetargetcapitalstructureis40%debt,15%preferredequity,and45%commonequity.Theafter-taxcostofdebtis6.00%,thecostofpreferredstockis7.50%,andthecostofcommonequityis17.00%.Whatisthefirmsafter-taxWACC?

   11.18%

   11.85%

   12.96%

   9.61%

   12.63%

1. What is unsystematic risk?

   		Risk specific to the firm
   		Market risk
   		The risk premium on stock
   		Standard deviation of stock returns
   		The beta of the firm