1.True or False?: A firm's Weighted Average Cost of Capital should be higher when inflation is higher, lower when inflation is lower.

2.Your firm has a marginal tax rate of 35% and the following capital structure:

Debt: (Long term bonds)

Total face value: 75 million

Total market value: 65 million

Coupon Rate: 9%

Yield to Maturity: 10%

Common Equity

Total book value: 80 million

Total market value: 120 million

dividend yield: 4%

Required rate of return (according to CAPM): 18%

What is your firm's Weighted Average Cost of Capital?

3.True or False?: When calculating a firm's Weighted Average Cost of Capital (WACC). One should use the book values of debt, preferred stock and common equity to calculate the relative weights for the three components of the firm's capital structure.