Management and Possible Answers

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2-Which of the following statements concerning the MM extension with growth is NOT CORRECT? Possible Answers:
The tax shields should be discounted at the cost of debt. •The value of a growing tax shield is greater than the value of a constant tax shield. •For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM’s original (with tax) assumptions. •For a given D/S, the WACC is greater than the WACC under MM’s original (with tax) assumptions. •The total value of the firm increases with the amount of debt. 10-Which of the following are NOT ways risk management can be used to increase the value of a firm? Possible Answers:

Risk management can increase debt capacity.
Risk management can help a firm maintain its optimal capital budget. •Risk management can reduce the expected costs of financial distress. •Risk management can help firms minimize taxes.
Risk management can allow managers to defer receipt of their bonuses and thus postpone tax payments. 11-Which of the following statements about project risk analysis in not-for-profit firms is incorrect? Possible Answers:

The market risk of a project is not relevant to not-for-profit firms. •A project’s corporate beta measures the contribution of the project to the overall corporate risk of the firm. •A project’s corporate beta is found (at least conceptually) by regressing returns on the project against returns on the market portfolio. •A project’s corporate beta is defined as (σP/σF)rPF, where σP is the standard deviation of the project’s returns, σF is the standard deviation of the firm’s returns, and rPF is the correlation among the two sets of returns. •In practice, it is usually difficult, if not impossible, to directly measure a project’s corporate risk, so project risk analysis typically focuses on stand-alone risk. 15-Which of the following statements concerning the MM extension with growth is NOT CORRECT? Possible Answers:

The tax shields should...
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