The required return on equity

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Reference no: EM132032499

1. When using a single rate, such as the WACC, to discount cash flows for all projects of a particular company, the discount rate could lead to accepting projects that will actually have a negative NPV. T/F

2. If a company's weighted average cost of capital is less than the required return on equity, then the firm:

A. must have preferred stock in its capital structure.

B. is financed with more than 50% debt.

C. has debt in its capital structure.

D. is perceived to be safe.

3. The pretax operating cash flow (EBITDA) break-even point is determined by how many units will have to be sold in order to cover the firms fixed cash expenses. T/F

4. If the degree of accounting operating leverage is 1.3 for a firm, then a 10 percent increase in revenue should drive a:

a. 30% increase in EBIT.

b. 12% increase in pretax operating cash flows.

c. 13% increase in EBIT.

d. 1.3% increase in pretax operating cash flows.

5. Total variable costs for a firm do not vary directly with the number of units sold. T/F

Reference no: EM132032499

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