1.

Jack's Construction Co. has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5%. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The U.S. Treasury bill is yielding 4% and the market risk premium is 8%. Jack's tax rate is 35%. What is Jack's weighted average cost of capital? Answer

| | 7.10%|

| | 7.39%|

| | 10.38%|

| | 10.65%|

| | 11.37%|

1 points

Question 2

1.

Peter's Audio Shop has a cost of debt of 7%, a cost of equity of 11%, and a cost of preferred stock of 8%. The firm has 104,000 shares of common stock outstanding at a market price of $20 a share. There are 40,000 shares of preferred stock outstanding at a market price of $34 a share. The bond issue has a total face value of $500,000 and sells at 102% of face value. The tax rate is 34%. What is the weighted average cost of capital for Peter's Audio Shop? Answer

| | 6.14%|

| | 6.54%|

| | 8.60%|

| | 9.14%|

| | 9.45%|

1 points

Question 3

1.

Phil's Carvings, Inc. wants to have a weighted average cost of capital of 9%. The firm has an after-tax cost of debt of 5% and a cost of equity of 11%. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital? Answer

| | .33|

| | .40|

| | .50|

| | .60|

| | .67|

1 points

Question 4

1.

Jake's Sound Systems has 210,000 shares of common stock outstanding at a market price of $36 a share. Last month, Jake's paid an annual dividend in the amount of $1.593 per share. The dividend growth rate is 4%. Jake's also has 6,000 bonds outstanding with a face value of $1,000 per bond. The bonds carry a 7% coupon, pay interest annually, and mature in 4.89 years. The bonds are selling at 99% of face value. The company's tax rate is 34%. What is Jake's weighted average cost of capital? Answer

| | 5.3%|

| | 5.8%|

| | 6.3%|

| | 6.9%|

| | 7.2%|

1 points

Question 5

1.

The Consolidated Transfer Co. is an all-equity financed firm. The beta is .75, the market risk premium is 8% and the risk-free rate is 4%. What is the expected return of Consolidated? Answer

| | 7%|

| | 8%|

| | 9%|

| | 10%|

| | 13%|

1 points

Question 6

1.

Assuming the CAPM or one-factor model holds, what is the cost of equity for a firm if the firm's equity has a beta of 1.2, the risk-free rate of return is 2%, the expected return on the market is 9%, and the return to the company's debt is 7%? Answer

| | 10.4%|

| | 10.8%|

| | 12.8%|

| | 14.4%|

| | None of the above.|

1 points

Question 7

1.

The cost of equity for Ryan Corporation is 8.4%. If the expected return on the market is 10% and the risk-free rate is 5%, then the equity beta is ___. Answer

| | 0.48|

| | 0.68|

| | 1.25|

| | 1.68|

| | Impossible to calculate with information given.|

1 points

Question 8

1.

The Template Corporation has an equity beta of 1.2 and a debt beta of .8. The firm's market value debt to equity ratio is .6. Template has a zero tax rate. What is the asset beta? Answer

| | 0.70|

| | 0.72|

| | 0.96|

| | 1.04|

| | 1.05|

1 points

Question 9

1.

The NuPress Valet Co. has an improved version of its hotel stand. The investment cost is expected to be $72 million and will return $13.5 million for 5 years in net cash flows. The ratio of debt to equity is 1 to 1. The cost of equity is 13%, the cost of debt is 9%, and the tax rate is 34%. The appropriate discount rate, assuming average risk, is: Answer

| | 8.65%|

| | 9%|

| | 9.47%|

| | 10.5%|

| | 13%|

1 points

Question 10

1.

Assume that you are a consultant to Broske Inc., and you have been...