1. Which of the following items is not a component when we calculate the WACC?
   1. Common stock price
   2. Cost of preferred stocks
   3. Cost of issuing common stocks
   4. Cost of retained earnings
   5. Net capital spending

2. Assume that you were hired as a financial consultant for SABIC. You have been provided with the following information: D₁ = $2.5; P₀ = $33.50; and g = 6% (constant). Based on the DCF approach, what is the cost of equity for SABIC?
   1. 10.60%
   2. 12.67%
   3. 11.33%
   4. 9.54%
   5. 13.46%

3. Al kharj Mall estimates that its WACC = 12.5% for a new expansion. The Mall is considering the following capital budgeting projects:

Project Size Rate of Return

A $1M 12%

B $1M 11.5%

C $1M 11.2%

D $1M 11%

E $1M 10.7%

F $1M 10.3%

G $1M 10.2%

Which set of projects should be accepted:

1. Projects A and B only.
2. Projects A, B, and C only.
3. Projects A, B, C, and D only.
4. Projects F and G only.
5. Accept all projects
6. Reject all projects.

4. Consider the following two mutually exclusive projects. If my WACC =10%, then I should:

Project	Year	0	1	2	3	4
A	Cash flows	-$100	$70	$70	$70	$70
B	Cash flows	-$100	$80	$70	$60	$50

1. Accept project A since its NPV = $109.81 is higher than project Bs NPV = $121.89
2. Accept project A since its NPV = $121.89 is lower than project Bs NPV = $109.81
3. Project As NPV = - $109.81. Thus, I shall reject project A and accept project B
4. Project Bs NPV = - $121.89. Thus, I shall reject project B and accept project A
5. We should reject both projects since they produce negative NPV values.