1. The relationship between the two key elements of the constant dividend growth model is

A. that the next dividend (for example, the dividend at the end of year 2) is less than the prior dividend (for example, the dividend at the end of year 1). B. that the growth rate is always positive and greater than the discount rate. C. assumes the growth rate is always more than the discount rate. D. the long run growth rate is positive o none of the above

2. A firm is considering the purchase of an asset whose risk is lower than the current risk of the firm, based on any method for assessing risk. In evaluating this asset, the decision maker should A. Increase the IRR of the asset to reflect the greater risk. o lower the cost of capital used to evaluate the project to reflect the lower risk of the project. B. Reject the asset, since its acceptance would increase the risk of the firm. C. Ignore the risk differential if the asset to be accepted would comprise only a small fraction of the total assets of the firm. D. Increase the cost of capital used to evaluate the project to reflect the higher risk of the project.

3. At some point in the past, you either bought or wrote an option. The option is near expiration and appears that it will expire in the money. If the option expires in the money, you are obligated to buy a specified item at a specified price. In this scenario, you are ______ A. long a put option B. short a call option. C. short a pull option. D. long a call option E. long a naked option

4. If Wolves Entertainment Company is acting in the best interests of stockholders (following the primary goal of the firm), which of the following is the optimal (best) capital budget for the firm? A. Debt = 70%, Equity = 30%, EPS = $3.42, Stock price = $20.40, Cost of Debt = 5.0%, Capital Budget $ 14 Million

B. Debt = 80%, Equity = 20%, EP5 = $3.28, Stock price = $19.70, Cost of Debt = 5.8%, Capital Budget $ 16 Million

C. Debt = 60%, Equity = 40%, EPS = $3.18, Stock price = $21.20, Cost of Debt = 4.0%, Capital Budget $ 12 Million D. Debt = 50%, Equity = 50%, EPS = $3.05, Stock price = $22.90, Cost of Debt = 3.5%, Capital Budget $ 10 Million E. Debt", 40%. Equity = 60%, EPS = $2.95, Stock price = $16.50, Cost of Debt = 3.0%, Capital Budget $ 8 Million