1. Bond rating agencies:
   1. assess the credit worthiness of the firm.
   2. assess the possibility of default by a firm on the payment of its bonds.
   3. include firm's such a Dominion, Moody's and Fitch.
   4. all of the statements above are true.

1. Picarello Corporation's next annual dividend is expected to be $4.64 per share, to be paid one year from today. The firm anticipates the growth rate in dividends will be 4% annually for the foreseeable future. If the current price is $51 per share, what is the required rate of return for the firm's equity?

1. Carbon Fiber Design and Build Inc. is considering the purchase of new a new carbon molding machine for use in their Sports Operations department. The investment would be an expansion of an industry segment that the firm knows well. You have been tasked with helping the division manager determine the WACC in advance of an analysis of the expected cash flows for the project. You have collected the following information: The firm has no preferred stock outstanding and has no plans to issue preferred stock. The estimated tax rate for the firm is 30%. The firm currently has $518,175 of bonds outstanding with at a pre-tax cost of 6.5%. The firm also has 31,888 shares of common stock outstanding at a price of $32.50 per share. The current yield to maturity on 10-year Treasury bonds is 3%, and the firm's beta is 0.95. Given this information, calculate the following figures. This question is worth 5points.

After-tax cost of debt: (1 point) Cost of equity: (1 point)

Equity amount (in dollars): (1 point) WACC: (2 points)

2. Is it possible for a firm to project an after-tax profit on an investment but to still consider the project unacceptable due to insufficient return?

1. No, if the project is expected to earn an after-tax profit, it would always be acceptable.
2. No, this is not how the sufficiency of return is calculated, so such a project would always be acceptable.
3. Yes, because merely achieving an after-tax profit is not the hurdle for acceptability of a project.
4. Yes, because the appropriate criterion, which is the equity risk premium, may be lower than the projects expected return.