29.If your project has the samebeta than the overall firm then you

A) should use WACC to discount your CFFAs.

B) should use a pure play approach.

C) should lower your WACC to adjust for the risk of the project.

D) Both (B) and (C) are correct.

E) None of the above.

30. If your firm has a credit rating of BBB, what is the after-taxcost of debt for the firms capital budgeting projects, if its average tax rate is 33%, and the marginal tax rate is 30%?

Credit Rating YTM Coupon Rate

AAA 4.5% 4.5%

AA 4.7% 5%

A 5.2% 5.9%

BBB 7% 6.5%

1. 7%
2. 4.69%
3. 4.9%
4. 3.34%
5. 3.796%

31. The GottchaBack Co. has a beta of 2.75, the market risk premium is 2.3% and the risk-free rate is 1.5%. What is the required return of GottchaBacks common stock?

A) 7.825%

B) 8%

C) 9%

D) 3.8%

E) 2.3%%

32. If managers blindly use WACC (weighted average cost of capital) to evaluate all of their firms capital budgeting projects, then they will

1. Reject too many low-risk projects that they should accept.
2. Accept too many high-risk projects that they should reject.
3. Reject too many high-risk projects that they should accept.
4. Both (A) and (B) are correct.
5. Both (A) and (C) are correct