Please help with the following 10 questions

Question 1(3 points)

What is the Annual pre-tax cash flow and Minimum pre-tax return XYZ, Inc.:

Project cost = $1000

Financed by:

$600 debt at 9% interest (pre-tax)

$400 equity with a 15% return requirement

Question 1 options:

a)

$114; 11.4%

b)

$116; 12.6%

c)

$118; 13.4%

d)

$113; 12.4%

Question 2(3 points)

Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?

Question 2 options:

a)

Accounts payable.

b)

Common stock "raised" by reinvesting earnings.

c)

Common stock raised by new issues.

d)

Preferred stock.

e)

Long-term debt.

Question 3(3 points)

If a company's target capital structure is 50% debt and 50% common equity, which would be a correct statement?

Question 3 options:

a)

The cost of reinvested earnings typically exceeds the cost of new common stock.

b)

The interest rate used to calculate the WACC is the average after-tax cost of all the company's outstanding debt as shown on its balance sheet.

c)

The WACC is calculated on a before-tax basis.

d)

The cost of equity is always equal to or greater than the cost of debt.

Question 4(3 points)

If a firm's marginal tax rate is increased, this would, other things held constant, lower the cost of debt used to calculate its WACC.

Question 4 options:

a) Trueb) False

Question 5(3 points)

Firm value is calculated by adding expected cash flow to the firm's cost of capital under each capital structure.

Question 5 options:

a) Trueb) False

Question 6(3 points)

Which of the following statements is false?

Question 6 options:

a)

Other factors being constant, higher fixed costs mean a higher operating leverage.

b)

Corporate bonds and notes provide no voting rights.

c)

The cost of debt is the minimum acceptable rate of return to a firm on a project of average risk.

d)

A firm that increases operating leverage for a given quantity of output, increases itsbusiness risk

Question 7(3 points)

If you assume that a project being considered has normal cash flows, with one outflow followed by a series of inflows, which statement would be correct?

Question 7 options:

a)

The NPV of a relatively low-risk project should be found using relatively high cost of capital.

b)

A project's NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the cost of capital.

c)

If a project's NPV is less than zero, then its IRR must be less than the cost of capital.

d)

The lower the cost of capital used to calculate a project's NPV, the lower the calculated NPV will be.

Question 8(3 points)

Assuming that NPVs based on the firm's cost of capital are equal, the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life.

Question 8 options:

a) Trueb) False

Question 9(3 points)

Which of the following is not potentially used in the weighted average cost of capital equation?

Question 9 options:

a)

cost of retained earnings

b)

weight of debt

c)

average corporate income tax rate

d)

marginal tax rate

Question 10(3 points)

Because the cost of capital is used to evaluate future investment proposals, it is important to include flotation costs because such costs would be incurred if a firm were to raise new capital to fund proposed projects.

Question 10 options:

a) Trueb) False