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1. Firm BAO has no debt and an asset beta of 1.5. Similar companies have a debt beta of 0.10 , so issuing debt will likely lower Firm BAO's equity beta. 2. Assume that you are a CFO of a grocery store chain. Each project has an up-front cost of $10M and a discount rate of 8 percent. a. Vegan-Meats, will produce perpetual free cash flow of $4M that start next year and grow at annual rate of 2 percent b. Non-Dairy Ice Cream, will produce perpetual free cash flow of $5M that start next year. You should choose Vegan-Meats, because it has the higher NPV. 3. In an efficient market, prices tend to react slowly to past information. 4. The ability to abandon an unprofitable project a few years down the line is similar to exercising a call option. 5. All else equal, financial managers that expect prices to fall should sell call options. 6. In a frictionless capital market, repurchasing shares will raise a firm's stock price. 7. You worry that if the price of rice continues to increase your sushi business will be headed to bankruptcy. You should buy a put option on rice barrels to protect yourself. 8. Issuing debt to invest in a project may not effect on operational risk, but it certainly will increase financial risk