1. Suppose that the nominal risk-free rate of return in the U.S is 8% and inflation is expected to be at 7%. In Australia the nominal interest rate is 14%. What is the expected rate of inflation in Australia if the Fisher Effect holds?

a. 7.33%

b. 1.09%

c. 12.94%

d. 3.53%

2. Assume a firm has no interest expense or extraordinary items. Given this, the operating cash flow can be computed as:

A) Net Income + Depreciation

B) (Sales - Costs) x (1-tax rate)

C) EBIT - Depreciation + Taxes

D) EBIT - Taxes

E) EBIT x (1-Tax Rate) + Depreciation x Tax Rate