Part I: Multiple Choices (50 Points). lease circle your answer. Each question only has one correct answer. appropriate to be used as an estimate of market risk premium? a. The average market risk premium from 1950 to 2018 b. The average market risk premium from 2015 to 2018. c. The average market risk premium from Jan 2018 to now d. The current market risk premium. 1. When you use CAPM to estimate the cost of equity, which one of the following is the 2. The equivalent annual cost method is useful in determining: a which one of two machines to purchase if the machines are mutually exclusive, b. the tax shield benefits of depreciation given the purchase of new assets for a c. which one of two investments to accept when the investments have different d. which one of two machines should be purchased when the machines are mutually have differing lives, and are a one-time purchase. project required rates of return. exclusive, have different machine lives, and will be replaced once they are worn out 3. A firm has 10 billion common shares trading at $30 per share. The book value of the equity is $50 billion. The total market value of the firm is $700 billion and book value of the firm is $100 billion. What is the weight of debt in the firm's capital structure? a. b. . d, 42.86% 50% 57.14% 75% 4. The prop osition that a firm borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs is: a. M&M Proposition I b. M& M Proposition II c. Tradeoff Theory d. Pecking Order Theory 5. The bonds issued by Stainless Tubs bear an 8 percent coupon, payable semiannually. The bonds mature in 11 years and have a $1,000 face value. Currently, the bonds sell for $952. What is the pre-tax cost of debt (Kd) for Stainless Tubs? a. 7.87%