1. The rate of return on the U.S. government treasury bill is 0.05 and the expected rate of return on the Wilshire 5000 is 0.07 . What is the required rate of return for a stock with a Beta 1.08.

2.Menger Corporation has a 0.3 probability of a return of -0.01, a 0.4 probability of a rate of return of 0.07, and the remaining probability of a -0.20 rate of return. What is the expected rate of return of Menger Corporation.

3. Hayek Corporation has a 0.5 probability of a return of 0.67, a 0.2 probability of a rate of return of 0.08, and the remaining probability of a 0.00 rate of return. What is the variance in the expected rate of return of Hayek Corporation.

4. Consider a company financed with 0.6 equity, 0.0 preferred stock, and the remaining debt subject to a corporate tax rate 0.5 If the required rate of return on the debt is 0.08, on the preferred stock is 0.10 and on the common stock is 0.15, what is the working average cost of capital for this company.

5. A stock is trading for 19, and just paid a dividend of 1.2 which is expected to grow at a fraction 0.15 per year. If Goldman Sacs charges a fraction 0.17 as a flotation cost, what is the required rate of return on a new stock issue.

6. What is the Net Present Value (NPV) of the following set of cash flows if the cost of capital is 0.12.

Co = -300

C01 = 370

C02 = 210

C03 = 60

7. Consider a company subject to a corporate tax rate of 0.6. If the company has a debt ratio of 0.4, and an unleveraged beta of 0.9, what is the company's leveraged beta.

8. A company has an un-leveraged value of 3,000,000 and debt 300,000. If the company is subject to a corporate tax rate of 0.30, and investors in the company are subject to a tax rate of 0.00 on equity income and 0.05 on debt income, what is the company's value.

9. A firm is raising funds by selling a package of equity, debt and preferred stock.

The details of the package are:

1) Equity sold for $30 million. Expected perpetual dividends to buyers is $2.20 million per year.

2) Preferred stock sold for $15 million. Expected perpetual dividends to buyers is $0.8 million per year.

3) Debt sold, perpetual risk-less (guaranteed) coupon payments to be $6 million a year and is discounted at a rate of 4.10% per year.

Assume no taxes and other Modigliani-Miller assumptions also hold.

What is the WACC for the firm.

10. A stock with a beta of 2.6 has an expected rate of return of 15.5%. The risk-less rate in the market is 4%. What is the market premium (market rate of return - risk-less rate)? Assume CAPM is true.

11. Shoop Bank has an average WACC of 0.09 and adjusts for risk by adding or subtracting 0.01 to or from its average WACC. If Shoop considers a a business loan above average risk, a car loan average risk, and a new ATM machine below average risk, what is Shoop's risk adjusted WACC for a business loan.

12. Sarapo Inc's are trading at their par value of $1,000 and pay interest 4 times a year. If each interest payment is 9 what is Sarapo's component cost of debt.

13. If the Present Value of all estimated futures costs of a 8 year new investment project is 170, and the future value of all expected profits is 400, what is the projects MIRR.

14. A firm invests in a project that will produce a steady yearly savings of $7,800,000 starting one year from now. The investment needed for the project is $113,000,000. What is the IRR of the project.

15. A firm has 10,000,000 shares outstanding with a price per share of $27.10 (previous to "Rights Issue").

It does a "Rights Issue" where it offers 2,000,000 shares to existing shareholders at a price of $15.60.

16. A firm has 10,000,000 shares outstanding with a price per share of $23.80 (previous to a share repurchase).

The firm repurchases 2,000,000 shares with a price per share of $26.60.

A share repurchase is a transaction whereby a company buys back its own shares from the marketplace. (As the repurchase price is greater than the market price, equity holders may sell shares to the firm only in proportion to their holding.