1. Your firm seeks to obtain a short-term loan from a local bank. The banker quotes you a rate of 3%. This is an inflation rate.

True

False

2. The pure play approach:

a. Is most useful when each division makes a multitude of different products.

b. Is easier to implement than the subjective approach.

c. Can be used to find the cost of capital for a division.

d. Should be used only if a firm has more than three divisions.

e. Cannot be used if the firm has preferred stock outstanding.

3. Generally speaking, financial markets are less efficient than real asset markets.

True

False

4. The market value of a firm’s equity is frequently called: