1. Bobs Warehouse is considering the following projects:

Project	Beta	IRR(actual project return)
X	0.6	9.8%
Y	0.8	11%
Z	1.15	16%

Bobs Warehouse is an all-equity firm. The T-bill rate is 2.5%, and the expected return on the market is 14%. The firm has an equity beta =1. Which project(s) should the firm accept?

A. Reject X, Accept Y, Accept Z

B. Reject X, Reject Y, Accept Z

C. Accept X, Reject Y, Reject Z

D. Accept X, Reject Y, Accept Z

E. Accept X, Accept Y, Reject Z

2.

D. L. Trucking has 175,000 shares of common stock outstanding at a market price of $28 a share and a market beta of 0.9. There are 25,000 shares of preferred stock outstanding at a market price of $40 a share. The cost of preferred stock of 8.9 percent. The outstanding bond issue of the company has a face value of $1,255,000 and a market price of $1200. The maturity of the bonds is 10 years and coupon rate is 9%. Coupons are paid semi-annually. Market return is 14% and risk-free rate is 5%. The company's tax rate is 40 percent. What is the weighted average cost of capital of D. L. Trucking?

A. 10.63%

B. 10.88%

C. 11.15%

D. 13.61%

E. None of the above

3.

Happy & Fun Inc. expects its EBIT to be $45,000 every year forever. Happy & Fun is currently an all-equity firm and has no debt. Its cost of equity is 20 percent. The tax rate is 34 percent. The company can borrow at 9 percent. What is Happy & Funs (unlevered) value currently?

A. $45,000

B. $148,500

C. $225,000

D. $330,000

E. None of the above

4.

Using information from the above for Happy & Fun Inc.. If Happy & Fun decides to increase its debt-equity ratio (D/E) to 0.5. what is the weighted average cost of capital (WACC) of Happy & Fun Inc. after taking on the leverage? A. 14.79 percent B. 15.31 percent

C. 17.73 percent

D. 18.75 percent E. None of the above