Question

1.

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?

A.

12%

B.

20%

C.

8%

D.

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?

A.

7.86%

B.

5.44%

C.

6.55%

D.

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.

A.

8%; 10%; 12%

B.

None of the above

C.

10%; 8%; 12%

D.

10%; 12%; 8%

4.

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?

A.

​7.17%

B.

​11.17%

C.

​7.33%

D.

​8.17%

Answer 1