1. True or false: The three ways to estimate the cost of common equity are with the CAPM, the build-up method, and the Gordon Growth Model.

True

False

2.True or false: The cost of capital is written in dollars.

True

False

3.True or false: When a firm's interest expense increases, the firm's tax bill decreases.

True

False

4.Which of the following describes adifferencebetween cost of debt and cost of equity?

A.Cost of debt creates a tax shield.

B.Flotation costs are associated with cost of equity.

C.Cost of equity is typically less expensive than cost of debt.

D.There is no difference.

5.AlterU has the option to issue 15-year bonds at $1,180 with a flotation cost of 7%, a tax rate of 34%, and a coupon rate of 6% (paid annually).What is AlterU's cost of debtbeforetax?

A.5.24%

B.5.88%

C.5.06%

D.4.34%

6.Job Cart Inc. has a preferred stock paying a 7% dividend on a $25 par value. The company issues new preferred stock, and the flotation cost will be 9% of the current price of $27.12. What is the cost of preferred stock?

A.5.92%

B.7.09%

C.6.45%

D.7.69%

7.A company just issued new stock that will pay a dividend of $4.00per share each year and is expected to grow at a constant rate of 4% per year indefinitely.The price at which the shares were issued was $34.50.The underwriters have charged 6% of the issue price in flotation costs.Given this information, what is the cost of equity for this company?

A.16.33%

B.16.83%

C.14.94%

D.8.33%

E.15.59%

8.A company has a beta of 1.5.The expected return on the market is 15%, and the risk-free rate is 3.5%. The flotation cost is 6%.Given this information, what is the company'scost of internal equity?

A.22.00%

B.20.75%

C.27.56%

D,24.44%

E.19.51%

9.Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is as follows: debt = 10%,preferred stock = 11%,and common stock = 18%. Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?

A.13.0%

B.14.2%

C.10.0%

D.18.0%

10.Which one of the following is NOT an example in which a firm can use its weighted average cost of capital?

A.Chipotle opens new locations.

B.Nike starts sponsoring an additional university.

CMicrosoft launches a new version of Office.

D.Toyota starts selling in the electric car market for the first time.