1. A firm has $30 million of common stock, $20 million of preferred stock, and $40 million of debt. The cost of equity is 8.5%, the cost of preferred stock is 9.5%, and the pretax cost of debt is 7%. If the firm's tax rate is 30%, what is the firm's WACC?

1. 7.75%

2. 8.33%

3. 7.12%

4. 6.44%

5. 8.06%

2. Ford Motor Company is discussing new ways to recapitalize the firm and raise additional capital. Its current capital structure has a 20% weight in equity, 10% in preferred stock, and 70% in debt. The cost of equity capital is 14%, the cost of preferred stock is 10%, and the pretax cost of debt is 9%. What is the weighted average cost of capital for Ford if its marginal tax rate is 30%?

1. 9.21%

2. 10.14%

3. 7.87%

4. 8.21%

5. 8.89%

3. Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.84, the risk-free rate is 5%, and the market risk premium is 8%. If your firm's project is all equity financed, estimate its cost of capital. The estimated cost of capital is enter your response here % (Round to two decimal places.)

4. Your company has two divisions: One division sells software and the other division sells computers through a direct sales channel, primarily taking orders over the internet. You have decided that Dell Computer is very similar to your computer division, in terms of both risk and financing. You go online and find the following information: Dell's beta is 1.23, the risk-free rate is 4.8%, its market value of equity is $65.9 billion, and it has $699 million worth of debt with a yield to maturity of 6.2%. Your tax rate is 35% and you use a market risk premium of 5.7% in your WACC estimates.

a. What is an estimate of the WACC for your computer sales division?

b. If your overall company WACC is 11.9% and the computer sales division represents 45% of the value of your firm, what is an estimate of the WACC for your software division?

Note: Assume that the firm will always be able to utilize its full interest tax shield.

a. What is an estimate of the WACC for your computer sales division?

The weighted average cost of capital for your computer sales division is

enter your response here

%. (Round to two decimal places.)

b. If your overall company WACC is 11.9% and the computer sales division represents 45% of the value of your firm, what is an estimate of the WACC for your software division?

Note: Assume that the firm will always be able to utilize its full interest tax shield.