62)

You are comparing Stock A to Stock B. Given the following information, what is the difference in the expected returns of these two securities?

State of Economy	Probability of State of Economy	Rate of Return if State Occurs
		Stock A	Stock B
Normal	45%	12%	17%
Recession	55%	-22	-31

-0.85 percent

2.70 percent

3.05 percent

13.45 percent

13.55 percent

64)

The Downtowner has 950,000 shares of common stock outstanding valued at $38 a share along with 40,000 bonds selling for $1,020 each. What weight should be given to the debt when the firm computes its weighted average cost of capital?

46.67 percent

55.05 percent

51.79 percent

53.06 percent

48.27 percent

65)

Cookie Dough Manufacturing has a target debt-equity ratio of .6. Its cost of equity is 16 percent, and its pretax cost of debt is 9 percent. What is the firm's WACC given a tax rate of 34 percent?

12.23 percent

12.78 percent

13.11 percent

13.48 percent

12.53 percent