12. Which capital budgeting tools if properly used will yield the same answer? A. WACC IRR and APV B. NPV IRR and APV C. NPV APV and Flow to Debt D. NPV APV and WACC E. APV WACC and Flow to Equity 13. The flow-to-equity approach to capital budgeting is a three step process of: A. calculating the levered cash flow the cost of equity capital for a levered firm then adding the interest expense when the cash flows are discounted. B. calculating the unlevered cash flow the cost of equity capital for a levered firm and then discounting the unlevered cash flows. C. calculating the levered cash flow after interest expense and taxes the cost of equity capital for a levered firm and then discounting the levered cash flows by the cost of equity capital. D. calculating the levered cash flow after interest expense and taxes the cost of equity capital for a levered firm and then discounting the levered cash flows at the risk free rate. E. None of the above. 14. The term (B x rb) gives the: A. cost of debt interest payments per year. B. cost of equity dividend payments per year. C. unit cost of debt. D. unit cost of equity. E. weighted average cost of capital. 15. The weighted average cost of capital is determined by: A. multiplying the weighted average after tax cost of debt by the weighted average cost of equity. B. adding the weighted average before tax cost of debt to the weighted average cost of equity. C. adding the weighted average after tax cost of debt to the weighted average cost of equity. D. dividing the weighted average before tax cost of debt by the weighted average cost of equity. E. dividing the weighted average after tax cost of debt by the weighted average cost of equity. 16. A key difference between the APV WACC and FTE approaches to valuation is: A. how the unlevered cash flows are calculated. B. how the ratio of equity to debt is determined. C. how the initial investment is treated. D. whether terminal values are included or not. E. how debt effects are considered; i.e. the target debt to value ratio and the level of debt. 17. Using APV the analysis can be tricky in examples of: A. tax subsidy to debt. B. interest subsidy. C. flotation costs. D. All of the above. E. Both A and C. 18. To calculate the adjusted present value one will: A. multiply the additional effects by the all equity project value. B. add the additional effects of financing to the all equity project value. C. divide the project’s cash flow by the risk-free rate. D. divide the project’s cash flow by the risk-adjusted rate. E. add the risk-free rate to the market portfolio when B equals 1. 19. Flotation costs are incorporated into the APV framework by: A. adding them into the all equity value of the project. B. subtracting them from the all equity value of the project. C. incorporating them into the WACC. D. disregarding them. E. None of the above. 20. Non-market or subsidized financing ________ the APV ___________. A. has no impact on; as the lower interest rate is offset by the lower discount rate B. decreases; by decreasing the NPV of the loan C. increases; by increasing the NPV of the loan D. has no impact on; as the tax deduction is not allowed with any government supported financing E. None of the above 21. What are the three standard approaches to valuation under leverage? A. CAPM SML and CML B. APR FTE and CAPM C. APT WACC and CAPM D. APV FTE and WACC E. NPV IRR Payback 22. The non-market rate financing impact on the APV is: A. calculated by Tc B because the tax shield depends only on the amount of financing. B. calculated by subtracting the all equity NPV from the FTE NPV. C. irrelevant because it is always less than the market financing rate. D. calculated by the NPV of the loan using both debt rates. E. None of the above.
