1. For a single year: Revenue = $3,000,000, cost of goods sold = $2,000,000, capital expenditures = $100,000, interest expense = $100,000, and selling and administrative costs = $200,000. Last year's net working capital (NWC) = $100,000 and this year's NWC = $100,000. Depreciation is $50,000. The tax rate, t, is 30%. The free cash flow for the year for this firm is A) $800,000 OB) $510,000 OC) $750,000 D) $410,000 2. Two firms, X and Y, both have identical assets valued at $1 million. Firm X has debt of $70,000. Firm Y has debt of $230,000. Which firm has higher leverage? A) Impossible to tell OB) They are the same C) Firm X OD) Firm Y 3. You represent a bank considering lending money to a firm. As part of the decision, you are analyzing the firm's financial health. Is it better for the firm to have a higher or lower interest coverage ratio? A) Higher B) Lower C) It depends 4. You are an analyst evaluating a firm's financial health. The firm's balance sheet shows total debt of $120,000 and equity of $340,000. The market values the firm's debt at its book value and its equity at 2.4 times its book value. What is the firm's Debt/Equity ratio based on market values? Round your answer to the nearest hundredth. 5. Consider two firms, A and B, with identical operations and identical future cash flows. Firm A is unlevered and is valued at $100,000. Firm B is levered with $30,000 in debt. According to M&M Proposition I, what should be the value of Firm B's levered equity? (Assume M&M perfect market conditions hold.)