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1. Gino's Travel Inc has a beta of 1.34. The overall stock market has a 12.5 % rate of return and a market risk premium
1. Gino's Travel Inc has a beta of 1.34. The overall stock market has a 12.5 % rate of return and a market risk premium of 8.2 %. What is the expected rate of return on this stock? a. 13.96% b. 14.80% c. 15.29% d. 16.11% 2. DIY, Inc. wants to have a weighted average cost of capital of 8%. The firm has an after-tax cost of debt of 4% and a cost of equity of 12%. What debt-equity ratio is needed for the firm to achieve their targeted weighted average cost of capital? a. 0.25 b.0.33 c. 0.50 d. 0.67 e. 1 3. Hibiscus Co has a debt-equity ratio of 0.80. The firm is analyzing a new project which requires an initial cash outlay of $300,000 for new equipment. The flotation cost for new equity is 9% and for debt 4.95%. What is the initial cost of the project including the flotation costs? a. $317,125 b. $320,850 c. $321,020 d. $322,580 e. $323,275 4. A firm should consider using. approach if it only calculates the WACC for the firm as a whole, yet it has divisions with substantially different risk characteristics. a. an empirical b. an unbiased c. an objective d. a subjective e. a transformational
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