2. The long-term debt of Topstone Industries is currently selling for 104.50% of its face value. The issue matures in 10 years and pays an annual coupon of 8%. What is the cost of debt?

A) 6.75%

B) 7.35%

C) 7.84%

D) 8.60%

E) 9.45%

3. Topstone Industries' preferred stock pays an annual dividend of $4.00 per share. When issued, the shares sold for their par value of $100 per share. What is the cost of preferred stock if the current price is $125 per share?

A) 3.2%

B) 3.7%

C) 4.0%

D) 4.7%

E) 31.3%

4. Suppose that Topstone Industries has a cost of equity of 14% and a cost of debt of 9%. If the target debt/equity ratio is 75%, and the tax rate is 34%, what is Topstone's weighted average cost of capital (WACC)?

A) 6.6%

B) 7.9%

C) 8.4%

D) 10.5%

E) 10.9%

5. Suppose a firm has 10.4 million shares of common stock outstanding with a par value of $1.00 per share. The current market price per share is $12.00. The firm has outstanding debt with a par value of $56.0 million selling at 102% of par. What capital structure weight would you use for debt when calculating the firm's WACC?

A) 0.157

B) 0.314

C) 0.686

D) 0.739

E) 0.843