Identify whether each statement below is TRUE or FALSE. (20 pts)

a)In a world with no taxes, a firm's capital structure is irrelevent meaning that WACC is constant for all levels of D/E.TrueFalse

b)WACC always reflects the fair value return on a firm's assets regardless of whether or not interest expense is tax deductible

TrueFalse

c)If interest expense is tax deductible, issuing debt creates a new asset whose value equals the present value of the avoided tax due to the interest expense.TrueFalse

d)In a world where interest expense is tax deductibile and bank-ruptcy costs are significant, there is an optimal capital structure is when the marginal increase in the tax shield is offset by marginal bankprutcy costs.TrueFalse

e)A firm's cost of equity(r_e)increases with increasing D/E due to greater business risk.TrueFalse

f)Firms having the same business risk must also have the same beta (e.g. systematic risk).TrueFalse

g)In a world with no taxes, the firm's cost of equityis constant across all D/E ratios less than 1.0.TrueFalse

h)A firm should use its WACC to evaluate all capital projects regardless of their nature and how they are financed.TrueFalse

i) The greater a stock's total risk as measured by its standard deviation, the higher its expected return.TrueFalse

j)A project's IRR is the rate which makes the NPV = 0.TrueFalse