If corporate tax rates decreased, what would most likely happen to depreciation tax shields (DTS), operating free cash flows (FCF) and after-tax salvage values (ATSV)? Assume positive NPV projects and MACRS depreciation. A) DTS would increase, FCF would increase and ATSV would decrease B)DTS would increase, FCF would increase and ATSV would decrease. C) DTS would decrease, FCF would decrease and ATSV would increase. D) DTS would decrease, FCF would increase and ATSV would increase. E) DTS would increase, FCF would increase and ATSV would increase.

Mark Which of the following statements is not true about the weighted average cost of capital (WACC) method? O a. WACC adjusts for the tax deductibility of interest costs O b. Average company WACC should not be used for evaluating projects in a multi-segment conglomerate O c. If WACC is greater than the IRR of a project and the cash flows are conventional, then, the NPV of the project will always be less than zero O d. WACC cannot be used to evaluate projects in which the capital structure is significantly different from the firm's overall structure Oe. If WACC is less than IRR of a strip mine project, then, the NPV of the project will always be greater than zero

Which of the following statements is CORRECT?   a. WACC calculations should be based on the before-tax costs of all the individual capital components.   b. Flotation costs associated with issuing new common stock normally reduce the WACC.   c. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.   d. A change in a company's target capital structure cannot affect its WACC.   e. If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.

Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio.

4. What factors should be considered when estimating a new business' NINV? Is it any different for an asset replacement project. 5. Why is depreciation, a noncash expense, considered when estimating a project's net cash flows? 6. What are the potential tax consequences of selling an old asset in an asset replacement investment decision?

Which of the following cash flows are not considered in the calculation of the annual cash-flow for a capital investment proposal? Incremental costs. O Taxes. O Depreciation on the project. Proceeds from selling an old asset which is being replaced by a new asset. Change in revenue.

1. In the context of capital budgeting, what is an opportunity cost?2. Given the choice, would a firm prefer to use MACRS depreciation or straight-line depreciation? Why?3. In our capital budgeting examples, we assumed that a firm would recover all of the working capital it invested in a project. Is this a reasonable assumption? When might it not be valid?4. Suppose a financial manager is quoted as saying, “Our firm uses the stand-alone principle. Because we treat projects like minifirms in our evaluation process, we include financing costs because they are relevant at the firm level.” Critically evaluate this statement.

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Which of the following contentions concerning the static trade off theory of capital structure are true? (i) The optimal capital structure depends upon both the value of the tax shield and on the costs of financial distress. (ii) Costs of financial distress decrease as the amount of debt in the capital structure increases. (iii) The value of the tax shield increases as the amount of debt in the capital structure decreases. (iv) The cost of financial distress does not depend upon the nature of the firm's assets. O Only (i) and (iv) are true. O Only (iv) is true. O Only (i) is true. None are true. O Only (ii) and (iii) are true.

Assuming that taxes are to be raised, which tax increase would be least detrimental to long term economic growth, a GST/HST increase or an increase in income tax? Assume that either of the increases would be revenue neutral, i.e., the federal government would take in the same amount of revenue with either tax that is raised.