1. Question 1

   An analyst should evaluate each project at its own opportunity cost of capital. The true cost of capital depends on the particular use of that capital.

   1. True
   2. False
2. Question 2

   Firms with cyclical revenues tend to have lower asset betas.

   1. True
   2. False
3. Question 3

   A sensible way for a manager to account for overoptimistic cash-flow forecasts is to adjust the discount rate.

   1. True
   2. False
4. Question 4

   Risky projects can be evaluated by discounting certainty equivalent cash flows at the risk-free interest rate.

   1. True
   2. False
5. Question 5

   The capital structure weights used in computing a company's weighted average cost of capital:

   1. depend on the financing obtained to fund each specific project.

   2. remain constant over time unless new securities are issued or outstanding securities are redeemed.

   3. can only include debt and common stock.

   4. are based on the market values of the outstanding securities.

   5. are based on the book values of debt and equity.

6. Question 6

   If a company uses its WACC as the discount rate for all of the projects it undertakes then the company will tend to:

   1. accept all positive net present value projects.

   2. reject all high-risk projects.

   3. increase the average risk level of the company over time.

   4. reject all negative net present value projects.

   5. favor low-risk projects over high-risk projects.

7. Question 7

   The slope of the regression line on a graph of common stock returns on the y-axis and market returns on the x-axis represents:

   1. alpha

   2. beta

   3. R-squared

   4. standard error

   5. standard deviation