If two firms have the same current dividend and the same expected dividend growth rate, their stocks must sell at the same current price or else the market will not be in equilibrium.

True

False

A firm estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 9%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept?

Project B is of below-average risk and has a return of 9.5%.

Project C is of above-average risk and has a return of 11.5%.

Project A is of average risk and has a return of 9%.

None of the projects should be accepted.

For capital budgeting and cost of capital purposes, the firm should always consider retained earnings as the first source of capital, i.e., use these funds first, because retained earnings have no cost to the firm.

True

False

Which of the following assets is not the operating assets?

		Accounts receivables
		Marketable securities
		Net fixed assets
		Inventories For a stock to be in equilibrium, two conditions are necessary: (1) The stock's market price must equal its intrinsic value as seen by the marginal investor and (2) the expected return as seen by the marginal investor must equal this investor's required return. True False