1) Which of the following is the correct method to use to calculate the firm value using the WACC method?

Question options:

Calculate the expected cash flows for the firm based on the firm's expected capital structure, and then discount them at the firm's weighted average cost of capital, WACC.

Discount the expected cash flows based on all-equity financing at the firm's weighted average cost of capital, WACC.

Discount the expected cash flows based on all-equity financing at the overall cost of capital for the firm.

Calculate the expected cash flows for the firm based on the firm's expected capital structure, and then discount them at the overall cost of capital for the firm

2) A firm is currently financed with $300 of debt and $700 of equity. The expected return on the debt is 9%. The market beta of the firm's equity is 1.50; the risk-free rate is 4%, and the equity premium is 6%. The firm pays taxes at a marginal rate of 35%.

Refer to the information above. The firm is considering increasing its debt to $400 and using the funds to repurchase some of its stock. This is likely to increase the expected return on debt to 10%. All else equal, what will the new market beta of the firm's equity be? Round your answer to the nearest tenth.

Question options:

	1.0
	1.6
	2.3
	The market beta of the equity will be unchanged.

3)

A firm has expected before-tax earnings of $100 million a year forever, starting next year. It is financed with 30% debt at an expected interest rate of 6% a year and 70% equity with an expected cost of 11% a year. If the firm is in the 35% tax bracket, what is its NPV?

Question options:

$684.21 million

$732.81 million

$1,052.63 million

$1,123.60 million

4)

The overall cost of capital for Canton Corporation is 10%. The firm is financed with 30% debt that offers a promised return of 15% and has an expected return of 8%. Canton is in the 40% marginal tax bracket.

Refer to the information above. What is Canton's weighted average cost of capital?

Question options:

7.6%

8.6%

9.7%

9.0%

5)

Assume a firm is financed with $2,000 debt that has a market beta of 0.1 and $3,000 equity. The risk-free rate is 3%, the equity premium is 5%, and the firm's overall cost of capital is 10%.

Refer to the information above. What is the expected return on the firm's debt?

Question options:

1.4%

3.5%

8.0%

5.0%

6)

Assume a firm can be financed with $400 of debt that has a market beta of 0.2 and $600 of equity that has a beta of 2.0. If the risk-free rate is 3.5% and the equity premium is 5%, what is the cost of capital of the overall firm?

Question options:

	4.09%
	4.5%
	9.9%
	13.5%