#1.

A company has the following financial information:

Source of capital	Proportion of capital structure	Cost of capital
Long-term debt	60%	7.1%
Preferred stock	20%	10.5%
Common stock	20%	14.2%

The companys marginal tax rate is 30%. To maximize shareholder wealth, the company should accept projects with returns greater than what percent?

a.7.1% b. 8.0% c. 9.3% d.14.2%

#2 A stock paid a $2 dividend last year. An investor projects that next year's dividend will be 10%higher and that the stock will be selling for $40 at the end of the year. The risk-free rate of interest is 8%, the market return is 13%, and the stock's beta is 1.2. Determine the value of stock.

a. $35

b. $37

c. $39

d. $42