Other things held constant, how would the SML change if investors become more risk averse? 1) It will have a steeper slope. 2) It will shift up. 3) It will have a less steep slope. 4) It will shift down. The 10-year bond of Crown Electronics is selling at $960 each. The bond has a coupon rate of 8% and par value of $1,000. The firm will incur a $20 flotation cost for each bond issued. If the firm's tax rate is 40%, what is after-tax cost of the firm's debt? 1) 5.36% 2) 6.45% 3) 5.17% 4) 8.93% Which of the following is generally not considered a capital component for the purpose of calculating the weighted average cost of capital (WACC)? 1) Long-term debt 2) Common stock 3) Preferred stock 4) Short-term debt The purchase of a new machine would increase the firm's revenues by $20,000 and operating costs by $5,000 each year. It also would increase its depreciation by $6,000 per year. What is the incremental operating cash flow (The firm's tax rate is 40%)? 1) $11,520 2) $9,520 3) $9,400 4) $11,400