3) If the before tax R_D equals 8% and the firms tax rate equals 25%, how much is the R_re using the Bond-Yield-plus-Risk-Premium method?

6%

9%

10%

12%

5) Calculate WACC₁ if the following is known:

Wd = 45%

R for Debt before Tax = 7.5%

T = 25%

Wps = 10%

R for Preferred stock = 8.25%

R for Retained Earnings = 9.25%

R for newly issued stocks = 9.75%

A. 8.36%

B. 7.52%

C. 8.59%

D. 7.74%

8) Based on the so-called Bird-in-Hand theory it can be concluded that:

a. Shareholders prefer that companies have high retained earnings.

b. Managers should invest in projects that promise a high return.

c. Companies should pay out dividends.

d. Shareholders do not pay attention to the WACC.