5. Which of the following statements is CORRECT? a. Preferred stockholders have a priority over bondholders to the income in the event of a bankruptcy, but not to the proceeds in the event of a liquidation. b. The preferred stock of a given firm is generally less risky to investors than the same firm's common stock c. Corporations cannot buy the preferred stocks of other corporations. d. Preferred dividends are not generally cumulative. 6. Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting? a. Long-term debt b. Retained earnings c. Common stock d. Accounts payable 7. Which of the following statements is CORRECT? a. For a given firm, the after-tax cost of debt is always more expensive than the after-tax cost of non-convertible preferred stock. b. The WACC is calculated using before-tax costs for all components. c. The WACC that should be used in capital budgeting is the firm's marginal, after-tax cost of capital. d. The after-tax cost of debt usually exceeds the after-tax cost of equity. 8. Duval Inc, uses only equity capital, and it has two equally-sized divisions. Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A's projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept? 3. A Division A project with a 9% return. b. A Division B project with a 13% return. c. A Division A project with an 11% return. d. A Division B project with a 12% return. 9. Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: Tre 4.10%; RPM - 5.25%; and b - 1.15. Based on the CAPM approach, what is the cost of equity from retained es earnings? a. 10.85% b. 7.81% c. 10.04% d. 10.14%