22. Consider the Free Cash Flow Equation, what happens to Free Cash Flow if the

Question

22. Consider the Free Cash Flow Equation, what happens to Free Cash Flow if the tax rate increases, holding all else constant? It decreases, increases, there is no change,

20. True/False

An investor can get rid of all systematic risk by diversifying their portfolio

19. True/False

Consider the WACC formula, if the required rate of return on preferred stock increases, holding all else equal, the WACC increases.

18. TRUE/FALSE

Sinking funds provisions allow companies to retire bonds on an orderly basis.

Explanation / Answer

22.

Correct option is > Decreases

Free cash flows are arrived after payment or provision of tax hence, if tax rate increases then we would get lesser free cash flows.

20.

False: An investor can get rid of all systematic risk by diversifying their portfolio

Systematic risk cannot me mitigated by diversification. Only unsystematic risk can get diversified.

19.

True: Consider the WACC formula, if the required rate of return on preferred stock increases, holding all else equal, the WACC increases.

Preferred cost is additive to WACC equation hence it will add to overall WACC cost.

18.

True: Sinking funds provisions allow companies to retire bonds on an orderly basis.

Sinking funds provision do facilitate orderly retirement of bonds.

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