1. The firm is financed with both equity and debt. The firm has 500,000 shares outstanding priced at $7 per share. The firm's beta is 1.2. The risk-free rate is 2.1% and the expected return on the market is 13% next year. The face value of the firm's debt is $1,500,000 (with the par value of $1,000), which is currently quoted at 98. The coupon rate is 7%, with the coupons paid semiannually. The bonds have 12 years left to maturity. The tax rate is 21%. The capital structure weight of equity is ______ and that of debt is ______%.

O a. 65.12; 34.88 O b. 73.11; 26.89 O c 70.42: 29 58 O d. 54.31; 45.69 O e. None of the above

2. Referring to the previous problem: What is the after-tax cost of debt of the firm? O a. 3.63% O b. 7.25% O c. 5.73% O d. 2.86% O e. None of the above

3. Referring to the previous two problems: The firm is considering a small, short-term project that would significantly diversify its line of business. Due to its size, the proposed project will, of course, carry less risk than the average project the firm accepted in the past. For this reason, the firm will apply the risk adjustment factor of 1.5%. What is the appropriate WACC that should be used for the project!

O a. 12.38% O b. 13.88% O c. 10.88% O d. 14.28% O e. None of the above