The Black Knight has a debt-equity ratio of .6, a beta of 1.12, a stock price of $42 a share, and a tax rate of 34 percent. The firm just paid an annual dividend of $.80 a share and plans to increase that amount by 3 percent annually in the future. The firm has a pre-tax cost of debt of 7.7 percent. The risk-free rate is 3.8 percent and the market rate of return is 8.4 percent. What is Black Knight’s WACC?

a. 6.08 percent

b. 6.25 percent

c. 7.15 percent

d. 7.24 percent

A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity. Given the following information, calculate the firm's weighted average cost of capital. Cost of Debt = 7.0%, Tax rate = 40%, Current Stock Price = $23.72, Long Run Growth rate = 3.8%, Next Year's Dividend = $2.26. Show your answer to the nearest .1%. Do not use the % sign in your answer. Enter your answer as a whole number, thus 9.2% would be 9.2 rather than .092 or 9.2%.

Two soil samples fully saturated were collected from the field for testing in the lab, both having a natural void ratio of 0.6. The composition of the soil particles is as follows:

Sample 1: Composed of ONLY quartz    [3]

Sample 2: Composed of 65% quartz, 23% mica &12% iron oxide.                               

   [4] The average value of specific gravity of soil particles is 2.65 for quartz, 3.0 for mica and

3.8 for iron oxide. Calculate the total unit weight of soil mass and specific gravity of soil particles for both the above mentioned soil samples.

You enetered into a currency swap that has 4.25 years left until termination. You receive 4.3% on $10 million and pay 3.8% on 9.5 million euros each settlement date. Current exchange rate is $1.10/1 Euros. The interest rates are listed below for the USD and EUR all quoted per annum with continuous compounding. What is the value of your swap today?

YEAR         USD       EUR

.25            3%          3.5%

1.25          3.5%         4%

2.25           4%           4%

3.25           4.25%       4.5%

4.25           4.25%       4.75%

1. Explain how and why each of the following factors would influence current aggregate demand in the United States:

(a) an increased fear of recession

(b) an increased fear of inflation

(c) the rapid growth of real income in Canada and Western Europe

(d) a reduction in the real interest rate

(e) a decline in housing prices

(f) a higher price level (be careful)

2. Which of the following would be most likely to shift the
long-run aggregate supply curve (LRAS) to the left?

a. unfavorable weather conditions that reduced the size of this year’s grain harvest

b. an increase in labor productivity as the result of improved computer technology and expansion in the Internet

c. an increase in the cost of security as the result of terrorist activities

3. How would an increase in the economy’s production possibilities influence the LRAS?

4. Suppose consumers and investors suddenly become more pessimistic about the future and therefore decide to reduce their consumption and investment spending. How will a market economy adjust to this increase in pessimism?

5. “If the general level of prices is higher than business
decision makers anticipated when they entered into
long-term contracts for raw materials and other
resources, profit margins will be abnormally low and
the economy will fall into a recession.”
– Is this statement true?

6. Which of the following would be most likely to throw the
U.S. economy into a recession?

(a) a reduction in transaction costs as the result of the growth and development of the Internet

(b) an unanticipated reduction in the world price of oil (will the impact of this factor differ between oil producing and oil consuming states?)

(c) an unanticipated reduction in AD as the result of a sharp decline in consumer confidence

7. During the first half of 2008, the world price of oil soared while stock and housing prices plunged. Within the framework of the AD-AS model, how would these two changes influence the U.S. economy? Explain the expected impact on output & price level.

8. When actual output is less than the economy’s full employment level of output, how will real resource prices and real interest rates adjust?

9. Construct the AD, SRAS, & LRAS curves for an economy experiencing:

(a) full employment equilibrium

(b) an economic boom

(c) a recession

explain how the government can cause consumption, government spending, investment, and exports to increase and thus stimulate GDP and improve the economy.  

If the marginal propensity to consume (MPC) is 0.9, then the multiplier for a change in autonomous spending will be

A. 100.

B. 0.1.

C. 10.

D. 9.

Suppose that goverment spending is raised at the same time that money supply is lowered. What will happen to the position of aggregate demand(AD). Explain

1. Suppose that goverment spending is raised at the same time that money supply is lowered. What will happen to the position of aggregate demand(AD). Explain

How are the 3 tools of fiscal policy used to combat a contradictory gap?

The 3 tools are taxes, gov spending and gov transfers.