A mutual fund manager expects her portfolio to earn a rate of return of 14% this year. The beta of her portfolio is .6. Assume rate of return available on risk-free assets is 6% and you expect the rate of return on the market portfolio to be 16%.

a.	Calculate the expected rate of return that investors will demand of the portfolio.

Expected rate of return

%

b.	Should you invest in this mutual fund?
	multiple choice No Yes

2.

Micro Spinoffs, Inc., issued 10-year debt a year ago at par value with a coupon rate of 6%, paid annually. Today, the debt is selling at $1,080. The firms tax bracket is 35%.

Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $8 per share, and the stock sells for $50.

Micro Spinoffss cost of equity is 18%. What is its WACC if equity is 60%, preferred stock is 10%, and debt is 30% of total capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

WACC

%