Mr. MOHAMMED company, The Problem Solvers, wants to issue new preferred stock. The preferred dividend is $3.00 per share, the stock can be sold for $30, and the flotation costs are$1. What is the cost of preferred stock, kp?

a.

10.34%

b.

9.34%

c.

12.34%

d.

11.34%

Which of the following best describes capital rationing?

a.

When the financial markets are told by government not to lend beyond imposed limits

b.

When funds are not available to undertake all the projects put forward by divisional management teams.

c.

When wealth is destroyed because capital repayments on loans have to be made earlier than anticipated

d.

When funds are not available to finance all wealth-enhancing projects

Mada has capital of 2m, three-quarters from shareholders who require a rate of return of 10 percent and one-quarter from lenders, who require an 8 per cent return. What is the WACC?

a.

9%

b.

18%

c.

5%

d.

9.5%

Which of the following best describes what determines the cost of debt capital?

a.

The cost to the firm of income less taxable profits

b.

The expected returns required by shareholders buying new shares in a firm

c.

The expected returns required by investors buying corporation bonds in competing companies.

d.

The current market rate of return for a risk class of debt