1. Which of the following is correct?

a.Investment bankers would prefer higher dividend taxes

b.Commercial bankers would prefer higher corporate income taxes

c.Commercial bankers would prefer lower dividend taxes

d.Commercial bankers would prefer lower corporate income taxes

2. A company with an average WACC of 10% adjusts for risk by adding 2% for high risk projects and subjecting 2% for low risk projects. Which of the following projects should the company accept?

Average risk project with IRR of 10%

Low risk project with an IRR of 9%

High risk project with an IRR of 12%

High risk project with IRR of 11%

3. An all equity financed company has the lowest possible working average cost of capital (WACC).

True or false

4. The rate of return on the U.S. government treasury bill is 0.05 and the expected rate of return on the Wilshire 5000 is 0.08 . What is the required rate of return for a stock with a Beta 0.90? Please show your work.

5. Order the following asset classes by average long term rate of return.

Bonds

Large stocks

Small stocks

Cash