1) The independence hypothesis suggests that the total market value of the firm’s
outstanding securities is unaffected by its capital structure.
2) Any increase in interest payments caused by a project should be counted in the
incremental cash flows.
3) Variation in a company’s income stream results from its choice of business line, its
choice of an operating cost structure, and its choice of a capital structure.
4) A saucer-shaped or U-shaped weighted average cost of capital curve results from the
tax deductibility of interest, which results in the downward slope, followed by the
recognition of potential financial distress costs, that cause the upward slope as the
amount of debt ratio increases.
5) Current assets in order of liquidity are cash, marketable securities, inventory, and
accounts receivable.
6) The future value of an annuity due is greater than the future value of an otherwise
identical ordinary annuity.
7) Bondholders and preferred stockholders can be viewed as creditors, whereas the
common stockholders are the true owners of the firm.