1. To help finance a major expansion, a company sold a noncallable bond several years ago that now has 15 years to maturity. This bond has a 10.25% annual coupon, paid semiannually, it sells at a price of $1,025, and it has a par value of $1,000. If the companys tax rate is 21%, what component cost of debt should be used in the WACC calculation?

A. 5.96%

B. 7.84%

C. 6.95%

D. 9.93%

2. You were hired as a consultant to a company, whose target capital structure is 40% debt, 10% preferred, and 50% common equity. The before-tax cost of debt is 6.0%, the cost of preferred is 8.0%, and the cost of retained earnings is 13.0%. The corporate tax rate is 21%. The firm will not be issuing any new stock. What is its WACC?

A. 8.72%

B. 9.02%

C. 9.20%

D. 10.15%

3. A firm estimate that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 9%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept?

A. None of the projects should be accepted.

B. Project B is of below-average risk and has a return of 9.5%.

C. Project C is of above-average risk and has a return of 11%.

D. Project A is of average risk and has a return of 9%.

4. A stock is selling for $50 in the market. The required rate of return is 9%. The most recent dividend paid is D₀ = $2.0 and dividends are expected to grow at a constant rate g. Whats the expected dividend yield for this stock???

A.4.00%

B.4.19%

C.5.0%

D. 9.0%