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1. The statement "We've got too much invested in that project to pull out now" possibly illustrates the need to be: Switch to an accelerated method of depreciation Be reacquainted with the concept of sunk costs Reduce net working capital assigned to the project Reduce discount rates to improve NPV 2. Adding deprecation expense to net profit equals: Profit before tax Total revenues The depreciation tax shield Cash flows from operations All four above do not match exact requirement , exact answer would be Profit before tax and depreciation, so market the most suitable answer. 3. Which of the following risk types can be diversified by adding stocks to a portfolio? Systematic risk Unique risk Default Risk Market Risk 4. Which of the following risks is most important to a well-diversified investor in common stocks? Market Risk Unique Risk Total Risk Diversifiable Risk 5. Calculate a firm's WACC given that the total value of the firm is $2,000,000, $600,00 of which is debt, the cost of the debt and equity is 10% and 15% respectively, and the firm pays no taxes 9.0% 11.5% 13.5% 14.4% 6. According to CAPM estimates, what is the cost of equity for a firm with beta of 1.5 when the risk-free interest rate is 6% and the expected return on the market portfolio is 15%? 19.5% 21.0% 22.5% 24.0% 7. A firms internally generated funds are calculated by: Subtracting depreciation from net income Adding depreciation to net income Adding dividends to net income Subtracting dividends from net income plus depreciation 8. When a firm issues 50,000 shares with a par value of $5 for $22 per share, additional paid in capital will: Decrease by $250,000 Increase by $250,000 Increase by $850,000 Increase by $1,100,000 9. Base upon the "trade-off-theory" of capital structure, what differences might you expect in the capital structure of a food producer and a defense contractor? Higher debt-equity ratio for food producer Higher debt-equity ratio for defense contractor Neither firm should use debt in their structure Differences in capital structure will make no valuation difference in these firms. 10. what is the return on equity for a firm with 15% return on assets, 10% return on debt, and a .75 debt/equity ratio? 18.75% 20.00% 23.75% 26.25% 11. You now own 84 shares of XYZ Stock which is selling for $40 each, 4 of which you just received from the XYZ Corporation. XYZ has declared a: Stock dividend of 5% Cash dividend of $4. Stock dividend of 4% Cash dividend of $160.

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