The following information concerns questions 14-16.

A company plans on financing major new expansion programs by drawing on funds in the following proportions that roughly correspond to its current capital structure: Long-term debt $30 million Preferred shares $10 million New common shares $40 million Issuing and underwriting expenses can be ignored. Debt can be issued at a coupon rate of 12 percent, and the required return on preferred shares would be 9 percent. Common shares currently trade at $45 per share. Next year's dividend is expected to be $2.25 per share. Management feels that, over the long run, growth in dividends should be about 10 percent per year. The corporate tax rate is 40 percent. 14.

Given the above information, what is the cost of common equity? A. 17%. B. 16%. C. 14%. D. 13%. E. none of the above.

Given the above information, what is the firm's WACC? A. 13.78%. B. 13.44%. C. 12.25%. D. 11.32%. E. none of the above.

Refer to the above information. Suppose the current risk-free rate is 10 percent, and the return on the market is expected to exceed this rate by 7 percent. What value of beta do we have to assume for the firm if the cost of equity as derived from the CAPM is to match the the required return derived in question 14 above. A. 0.78. B. 0.67. C. 0.71. D. 0.83. E. none of the above.