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A _______ activity is carried out regardless of which customer is served, which products are produced, how many batches are run, or how many units are made. What is an example of this?

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Which of the following statements is CORRECT?a. The WACC as used in capital budgeting will be the after-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year.b. The percentage flotation costs associated with issuing new common equity are typically smaller than the flotation costs for new debt.c. The WACC as used in capital budgeting is an estimate of a company's before-tax cost of capital.d. The WACC as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets.e. There is an "opportunity cost" associated with using retained earnings-they are not "free."

Which of the following statements is CORRECT? Assume that the firm is a publicly-owned corporation.a. If a firm's managers want to maximize the value of the stock, they should, in theory, concentrate on project risk as measured by the standard deviation of the project's expected future cash flows.b. If a firm evaluates all projects using the same cost of capital, then its risk will probably decline over time.c. Projects with more than average risk typically have higher than average expected returns. Therefore, to maximize a firm's intrinsic value, its managers should favor high beta projects over low beta projects.d. Project A has a standard deviation of expected returns of 20%, while Project B's standard deviation is only 10%. A's returns are negatively correlated with the firm's other assets and with returns on most stocks in the economy, while B's returns are positively correlated. Therefore, Project A is less risky to a firm and should be evaluated with a lower cost of capital.e. If a firm has a beta that is less than 1.0, say 0.9, this would suggest that the expected returns on its assets are negatively correlated with the returns on most other firms' assets.

Which of the following statements is CORRECT?a. The component cost of preferred stock is expressed as rp(1 - T), because preferred stock dividends are treated as fixed charges, similar to the treatment of debt interest.b. We should use historical measures of the component costs from prior financings when estimating a company's WACC for capital budgeting purposes.c. The cost of new equity (re) could possibly be lower than the cost of retained earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.d. The cost of retained earnings is the rate of return stockholders require on a firm's common stock.e. In the WACC calculation, we must adjust the cost of preferred stock (the market yield) because 70% of the dividends received by corporate investors are excluded from their taxable income.

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