1. Assume the following: The risk-free rate is 2%, the expected return on the market is...

Assume the following: The risk-free rate is 2%, the expected return on the market is 7%, and this firm's stock is twice as risky as the market on average. What would be the cost of equity for this firm?

12%

20%

14%

2.A company has outstanding debt with a market value of $250M and common stock with a market value of $550M. If its debt has a before-tax cost of 7%, a before-tax cost of equity of 10% and a corporate tax rate of 40%, what is its WACC?

7.86%

5.44%

6.55%

8.19%

3.Select the order in which the indicated WACCs would apply to an average-risk, a high-risk, and a low-risk project, respectively.

8%; 10%; 12%

None of the above

10%; 8%; 12%

10%; 12%; 8%

Alloy Supply Co. has a new project that will require the company to borrow $3,000,000. Acme has made an agreement with three lenders for the needed financing. First National Bank will give $1,500,000 and wants 6% interest on the loan. Banner Bank will give $1,000,000 and wants 9% interest on the loan. Western National Bank will give $500,000 and wants 7% interest on the loan. What is the weighted average cost of capital to acquire the $3,000,000?

7.17%

11.17%

7.33%

8.17%

Solutions

Expert Solution

jeff jeffy answered 1 year ago

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