1.A firm performs capital restructuring in order to ____.

	a.	increase its risk by increasing equity
	b.	increase the return on equity by eliminating all debt
	c.	get to an optimal capital structure
	d.	decrease its risk by adding more leverage

2.In the MM model, the risk of bankruptcy:

	a.	reduces the present value of the tax shield of debt.
	b.	reduces the positive effect of financial leverage on firm value.
	c.	eliminates the possibility of a net positive effect of financial leverage on firm value.
	d.	has no impact on the relationship between financial leverage and firm value.
	e.	a and b

3.In the MM model, the mix of debt and equity that minimizes the cost of capital is the:

	a.	optimal corporate structure.
	b.	optimal degree of combined leverage.
	c.	optimal capital structure.
	d.	target financial structure.

4.The NPV and IRR of any capital budgeting project are random variables with means that represent their most likely values and variances that reflect:

	a.	variations in profit.
	b.	value inconsistencies.
	c.	risk.
	d.	unstable expectancies.

The first step in capital budgeting is to:

	a.	reduce projects to their simplest form.
	b.	compare competing alternatives.
	c.	determine the difficulty of a project.
	d.	reduce the project to a series of cash flows.