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