1 Mitchel Co has $3.9 million of debt, $3 million of preferred stock and $3.3 million of common equity. What would be its weight on preferred stock?

a. 0.29

b. 0.23

c. 0.32

d. 0.38

2. Chemical Co. has two divisions: one is very risky, and the other has significantly less risk. The company uses its investors overall required rate of return to evaluate projects. It is most likely that the firm will become:

a. Risker over time, and its value will increase

b. Risker over time, and its value will decrease

c. Less risky over time, and its value will increase

d. Less risky over time, and its value will decrease

3. Google Co. has outstanding 10-year noncallable bonds with a face value of $1,000. These bonds have a current market price of $1,495.56, a coupon rate of 10%, and annual coupon payments. The company faces a tax rate of 35%. If the company wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt? a. 2.55% b. 2.04% c. 3.06% d. 2.30%

4. Manila Co. is considering a one year project that requires an initial investment of $500,000; however in raising this capital, Manning will incur an additional flotation cost of 2.0%. At the end of the year, the project is expected to produce a cash inflow of $595,000. Determine the rate of return that Manning expects to earn on the project after flotation costs are taken into account. a. 12.5% b. 16.7% c. 10.0% d. 10.9%

5. Manila Co. has a current stock price of $33.35 and is expected to pay a dividend of $1.36 at the end of next year. The companys growth rate is expected to remain constant at 5.2%. If flotation cost represent 3.0% of funds raised, what is the flotation-adjusted cost of new common stock? a. 9.4% b. 9.3% c.8.0% d. 7.5%

6. Manila Co.s addition to earnings for this year is expected to be $745,000. Its target capital structure consists of 40% debt, 5% preferred, and 55% equity. Determine Mannings retained earnings breakpoint: a. $1,693,181 b. $1,862,500 c. $1,354,545 d. $1,557,727

7. Paris Co. currently has only a real estate division and uses only equity capital; however, it is considering creating consulting and distribution divisions. Its beta is currently 1.2. The risk-free rate is 4.8%, and the market-risk premium is 6.7%. This means that the firms real estate division will have a cost of capital of a. 4.80% b. 9.60% c. 10.56%

d.12.84%

8. The consulting division is expected to have a beta of 1.8, because it will be risker than the firms real estate division. This means that the firms consulting division will have a cost of capital of: a.19.36% b.17.81% c.16.86% d.18.21%

9. The distribution division will have less risk than the firms real estate division, so its beta is expected to be 0.8. This means that the distribution divisions cost of capital will be: a. 18.81% b. 18.91% c. 10.16% d. 17.61%

10. Paris Co. expects 60% of its total value to end up in the real estate division, 25% in the consulting division, and 15% in the distribution division. Based on this information, what rate of return should its investors require once it opens the new division? a.16.29% b.13.44% c.14.74% d.18.19%