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1. Which causes a company to become leveraged?

1. 1. Issuing high amounts of common stock
   2. Making an initial public offer (IPO)
   3. Having high fixed costs
   4. Having high variable costs
2. Which of the following correctly describes how a firm's required return is determined?
3. 1. Using the going market rate for risk-free securities
   2. As the present value of the firm's debt and equity
   3. As the opportunity cost that its investors forego
   4. Using the average rate paid for debt and the company's share price
4. All of the following are true of the free cash flow (FCF) analysis EXCEPT
5. 1. it can also be calculated using the operating cash flow figure from the statement of cash flows less capital expenditures.
   2. it includes adjustments for the difference between the change in total current assets and total current liabilities.
   3. it must be a positive amount for it to be interpreted positively by investors.
   4. it is considered a better representation of the value of the firm to shareholders than operating cash flow.
6. A construction firm has a contract that has $10,000 due today, January 1, and then requires a payment of $5,000 at the end of the year and $15,000 at the end of the second year. Assuming that all funds can be invested to earn a return of 6%, how much will the contract be worth at the end of the second year?
7. 1. $30,000
   2. $31,236
   3. $31,536
   4. $33,483

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