1. Which of the following statements concerning the required rate of return on stocks is true?
a. the higher an investor's required rate of return, the higher the value of the stock
b. If risk is reduced, the required return will decrease because more investors are risk-averse.
c. The required return on preferred stock is generally higher than the required return on common stock.
d. the higher the risk, the higher the required return, other things being equal
2. When evaluating an investment project, which of the following best describes the financial information needed by the decision maker?
a. after-tax accounting profits
b. after-tax incremental cash flows to the company as a whole
c. incremental cash flows before taxes so the decision will not be biased by a tax code that may change in the future
d. pre-tax accounting profits adjusted for any accounting method changes.