Regarding the tax treatment of payments to securities holders, it is true that _______________, while ____________________.

1.

interest and preferred stock dividends are tax-deductible; while common stock dividends are not tax-deductible

2.

common stock dividends and preferred stock dividends are tax-deductible; while interest is not tax-deductible

3.

interest and preferred stock dividends are not tax-deductible; while common stock dividends are tax-deductible

4.

common stock dividends and preferred stock dividends are not tax-deductible; while interest is tax-deductible

A $1,000 par value 10-year bond with a 10 percent coupon rate recently sold for $900. The yield to maturity is:

1.

10 percent

2.

cannot be determined

3.

less than 10 percent

4.

greater than 10 percent

XYZ has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. XYZ's CFO has calculated the company's WACC as 9.96%. What is the company's cost of equity?

	1.	8.89%
	2.	13%
	3.	12.3%
	4.	14.65%