Your boss at the private equity company wants to value a takeover target. To value it, he asks you to determine FCFF using the following income statement for the firm. You also estimate that ongoing annual investment in current assets is $5 million per year and annual expenditures on capital investments are estimated at $10 million per year.

Select one:

a. $22 million

b. $15 million

c. $24 million

d. $29 million

The capital asset pricing model recommends investing in portfolios made up of a portfolio allocation to the market portfolio and a portfolio allocation to the riskless asset. Why is this the case?

Select one:

a. None of the above.

b. It is the case because the recommended portfolio is diversified.

c. Holding some money in the riskless asset for emergencies is prudent.

d. The recommended portfolio offers equal or greater expected returns for a given risk level than any other portfolio with the same risk level.

e. Including the riskless asset reduces portfolio risk.