Question 1: The debt-to-equity ratio of your firm is currently 1/2. Under this capital structure, the cost of equity is 12%. You are planning to change your firms capital structure so that the new debt-to-equity ratio becomes 2. The change in the debt-to-equity ratio is expected to be permanent. Assume that regardless of the firms capital structure, the cost of debt is 6% and the corporate tax rate is 40%. What is the WACC under the current capital structure?

	A.	8.4%
	B.	10%
	C.	18%
	D.	9.2%

QUESTION 2

What is the firms unlevered cost of capital?

	A.	9.2%
	B.	10%
	C.	8.4%
	D.	18%

QUESTION 3

What is the firms cost of equity under the new capital structure?

	A.	18%
	B.	9.2%
	C.	8.4%
	D.	10%

QUESTION 4

What is the WACC under the new capital structure?

	A.	9.2%
	B.	8.4%
	C.	10%
	D.	18%

QUESTION 5

The new WACC is _______ than the old WACC due to _______.

	A.	lower; a higher tax benefit of debt
	B.	higher; a lower tax benefit of debt
	C.	higher; a higher tax benefit of debt
	D.	lower; a lower tax benefit of debt