Question
1. You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest
1. You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 11.25%, and the tax rate is 40%. What is Quigley's WACC? [Reference: Mod 2, Cost of Capital mini-lectures]
A. 8.15%
B. 8.48%
C. 8.82%
D. 9.17%
2. Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one project higher, but the IRR method puts the other one first. In theory, such conflicts should be resolved in favor of the project with the higher NPV. [Reference: Mod 3, basics of capital budgeting NPV and IRR mini-lectures]
A. True
B. False
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