Q4

A)

Forecasting risk is defined as the:

	a.	Potential for the net income projections of a project to be erroneous.
	b.	Possibility that errors in projected cash flows will result in incorrect decisions.
	c.	Study of how changes in variable costs affect the net present value of a project.
	d.	Analysis of how the break-even point moves as the contribution margin changes over time.
	e.	Investigation of what happens to net present value when one estimated value is changed.

B)

The return that shareholders require on their investment in the firm is called the:

	a.	Cost of capital.
	b.	Income return.
	c.	Cost of equity.
	d.	Capital gains yield.
	e.	Dividend yield.

C)

Which one of the following statements is correct concerning the weighted average cost of capital (WACC)?

	a.	The weight of the common stock used in the computation of the WACC is based on the number of shares outstanding multiplied by the book value per share.
	b.	A firm's WACC will decrease as their corporate tax rate decreases.
	c.	The pre-tax rate of return on the debt is the rate that is relevant to the computation of the WACC.
	d.	The weight of the debt can be based on the face value of the bond issue(s) outstanding multiplied by the quoted price(s) when expressed as a %age of the face value.
	e.	When computing the WACC, the weight assigned to the preferred stock is equal to the coupon rate multiplied by the par value assigned to the preferred stock.