Question 1

Eaglet Corporation has the following target and costs associated with its capital structure. Based on these parameters what is Eaglet Corporations weighted average cost of capital?

Target common equity weight:	50percent
Target debt weight:	50percent
Cost of equity:	12 percent
Cost of debt:	4 percent
Tax rate:	35 percent

A. WACC = 7.3 percent

B. WACC = 5.2 percent

C. WACC = 8.0 percent

Flag this QuestionQuestion 2

Riddle Industries has the following parameters related to its stock and firm.

Beta:	1.1
Recent Dividend	1.05 dollars
Dividend Growth Rate	4.5 percent
Expected return on market	11.0 percent
Treasury Bills Yield	4.3 percent
Most recent stock price	64.00 dollars

What is the cost of equity using DDM? What is the cost of equity using SML?

A. 6.21 percent, 11.67 percent

B. 6.01 percent, 7.37 percent

C. 4.5 percent, 11.00 percent

Flag this QuestionQuestion 3

Given the following information for UARE Inc. Find the WACC.

Tax rate	35 percent
Debt:
Bonds outstanding:	6000
Coupon on bonds:	4 percent
Par value of bonds:	$1000
Bonds selling at what percent of par:	105
Bonds make coupon payments:	semi-annually
Years to maturity of bonds	25
Common Stock:
Shares Outstanding:	185,000
Current price/share:	$58.00
Beta:	1.10
Market Information:
Risk premium:	7 percent
Risk-free rate	5 percent

A. WACC = 8.89%

B. WACC = 8.45%

C. WACC = 9.37%