A. What two components typically comprise a company's capital structure, and therefore its WACC?

• a.)
• Debt and equity
• b.)
• Equity and assets
• c.)
• Equity and interest
• d.)
• Debt and interest

B. The bond yield plus risk premium (BYPRP) approach is useful for determining __________.

• a.)
• the overall value of a company
• b.)
• the value of a company's publicly traded equity
• c.)
• the value of a company's debt
• d.)
• the value of a company's private equity

C. One reason a company may choose to issue additional debt instead of equity when raising capital is that __________.

• a.)
• there are tax advantages to debt
• b.)
• debt always has a lower cost of capital
• c.)
• it decreases the risk that the company will default on its obligations
• d.)
• too much equity can increase a company's interest rate

D. Which of the following steps happens last in a Chapter 11 bankruptcy?

• a.)
• The company considers modifications to its operations as an alternative to bankruptcy.
• b.)
• The company receives a stay from any collections activity.
• c.)
• The company's debtholders vote on a plan of debt reorganization.
• d.)
• The company liquidates all of its assets.

E. Theoretically, a company comparing multiple long-term projects would select to invest in those with __________ payback period.

• a.)
• the lengthiest
• b.)
• an initial
• c.)
• the briefest
• d.)
• an average

F. Select one disadvantage of IRR as acapitalbudget method.

• a.)
• It can only be used to compare mutually exclusive projects.
• b.)
• It is one of the more complicated capital budgeting methods.
• c.)
• It is difficult to draw comparisons to a company's minimum acceptable rate of return.
• d.)
• The IRR can be inaccurate due to risks related to reinvestment.