Firm XYZ has the following capital structure:

Security	Market value	Required rate of return
Debt	30 million	5%
Common stock	50 million	15%
Preferred stock	20 million	6%

1. Briefly explain the concept of weighted-average cost of capital (WACC). What is the companys WACC? You may assume that corporate tax is 30%. [6 Marks]

2. XYZ is evaluating a project with an Internal Rate of Return (IRR) of 8%. Should it accept the project? Briefly explain. [6 Marks]

3. If the project will generate cash flows of 50,000 a year for 10 years, what is the most XYZ should be willing to pay to initiate the project? Briefly explain. [6 Marks]

Firm XYZ wants to learn more about the financial market efficiency:

4. What do we mean by market efficiency and what are its different forms? Briefly explain. [4 Marks]

5.Its competition for information that makes securities markets efficient. Is this statement correct? Briefly explain. [3 Marks]