1. The concept of cost of capital is close to the concept of (A) expected rate of return, (B) dividend yield, (C) discount rate, (D) opportunity cost. Answer: 2. A firm's assets have an expected rate of return of 12%. Its debt has an expected rate of return of 5%, and its equity has an expected rate of return of 18%. What is the firm's debt ratio? Answer: 3. The cost of capital of debt is closest to the cost of capital of the firm, when the debt ratio is (A) at zero, (B) at 50%, (C) at 99.9%