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

a)In a world with no taxes, a firms capital structure is irrelevent meaning that WACC is constant for all levels of D/E. True False

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

True False

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. True False

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. True False

e)A firms cost of equity (r_e) increases with increasing D/E due to greater business risk. True False

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

g)In a world with no taxes, the firms cost of equity is constant across all D/E ratios less than 1.0. True False

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

i) The greater a stocks total risk as measured by its standard deviation, the higher its expected return. True False

j)A projects IRR is the rate which makes the NPV = 0. True False