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Cost of Capital Mul t i pl eChoi c eQue s t i o ns : I.

DEFINITIONS

WACC e 1. a. b. c. d. e.

The weighted average of the firm’s costs of equity, preferred stock, and after tax debt is the: reward to risk ratio for the firm. expected capital gains yield for the stock. expected capital gains yield for the firm. portfolio beta for the firm. weighted average cost of capital (WACC).

Di ffic ul t yl e v e l :Eas y CAPM b 2. I ft heCAPM i sus e dt oe s t i ma t et hec os tofe qui t yc a pi t a l , t hee xpe c t e de x c e s sma r k e tr e t u r ni s e qua lt ot h e : a . r e t ur no nt hes t oc kmi nust her i s k f r e er a t e . b . di ffe r e nc eb e t we e nt her e t ur nont hema r k e ta ndt h er i s k f r e er a t e . c . be t at i me st h ema r k e tr i s kpr e mi um. d. be t at i me st h er i s k f r e er a t e . e . ma r k e tr a t eofr e t ur n. Di ffic ul t yl e v e l :Eas y CHARACTERI STI CLI NE c 3. Thebe s tfitl i neofapa i r wi s epl otoft her e t ur nsoft hes e c ur i t ya g a i ns tt hema r k e ti nde xr e t u r ns i sc a l l e dt he : a . Se c ur i t yMa r k e tLi ne . b . Ca pi t a lMa r ke tLi n e . c . c ha r a c t e r i s t i cl i ne . d. r i s kl i ne . e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um USEOFDEBT c 4. Theus eofd e bti sc a l l e d : a . ope r a t i n gl e v e r a g e . b . pr oduc t i onl e v e r a g e . c . fina nc i a ll e v e r a g e . d. t o t a la s s e tt ur nov e rr i s k. e . bus i ne s sr i s k. Di ffic ul t yl e v e l :Me di um

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WEIGHTED AVERAGE COST OF CAPITAL b 5. The weighted average cost of capital for a firm is the: a. discount rate which the firm should apply to all of the projects it undertakes. b. overall rate which the firm must earn on its existing assets to maintain the value of its stock. c. rate the firm should expect to pay on its next bond issue. d. maximum rate which the firm should require on any projects it undertakes. e. rate of return that the firm’s preferred stockholders should expect to earn over the long term. Di ffic ul t yl e v e l :Me di um I I . CONCEPTS WACC a 6. a . b . c . d. e .

TheWACCi sus e dt o_______t hee xpe c t e dc a s hflo wswhe nt hefir mha s_____ _______. di s c ou nt ;de bta nde qu i t yi nt hec a pi t a ls t r uc t u r e di s c ou nt ;s ho r tt e r mfina n c i n gont h eba l a n c es he e t i nc r e a s e ;de bta nde qu i t yi nt h ec a pi t a ls t r uc t ur e de c r e a s e ;s hor t t e r m fina nc i n go nt heba l a n c es he e t Noneoft hea bo v e .

Di ffic ul t yl e v e l :Me di um CAPM d 7. a . b . c . d. e .

Us i ngt heCAPM t oc a l c ul a t et hec os to fc a pi t a lf orar i s kypr o j e c ta s s ume st h a t : us i n gt hefir m' sbe t ai st hes a meme a s ur eofr i s ka st h epr o j e c t . t hefir mi sa l l e q ui t yfina n c e d. t hefina n c i a lr i s ki se qua lt obu s i n e s sr i s k . Bo t hAa ndB. Bo t hAa ndC.

Di ffic ul t yl e v e l :Me di um WACC c 8. a . b . c . d. e .

Theus eofWACCt os e l e c ti n ve s t me nt si sa c c e pt a bl ewhe nt he : c or r e l a t i ono fa l ln e wpr oj e c t sa r ee qua l . NPVi spos i t i v ewhe ndi s c ount e db yt heWACC. r i s ko ft hepr o j e c t sa r ee qua lt ot her i s koft hefir m. fir mi swe l ldi v e r s i fie da n dt heun s y s t e ma t i cr i s ki sne gl i gi bl e . Noneoft hea bo v e .

Di ffic ul t yl e v e l :Eas y

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DI SCOUNTRATE b 9. I ft her i s kofa ni n v e s t me ntp r o j e c ti sd i ffe r e ntt ha nt hefir m' sr i s kt he n: a . y o umu s ta d j us tt h ed i s c ountr a t ef ort hepr o j e c tba s e dont hefir m' sr i s k. b . y o umu s ta d j us tt h ed i s c ountr a t ef ort hepr o j e c tba s e dont hepr oj e c tr i s k. c . y o umu s te x e r c i s er i s ka v e r s i ona ndus et hema r ke tr a t e . d. a na v e r a g er a t ea c r os spr i orp r oj e c t si sa c c e pt a bl ebe c a us ee s t i ma t e sc ont a i ne r r or s . e . onemus tha v et h ea c t u a lda t at ode t e r mi nea n ydi ffe r e nc e si nt hec a l c ul a t i ons . Di ffic ul t yl e v e l :Eas y SECURI TYMARKETLI NE a 10. I ft hepr o j e c tbe t aa ndI RRc oo r di na t e sp l ota bov et heSMLt hepr o j e c ts houl dbe : a . a c c e pt e d. b . r e j e c t e d. c . I ti si mpos s i b l et ot e l l . d. I twi l lde pe ndont heNPV. e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um BETA d 11. Thebe t aofas e c u r i t ypr o vi de sa n: a . e s t i ma t eo ft hema r k e tr i s kpr e mi u m. b . e s t i ma t eo ft hes l o peoft heCa pi t a lMa r ke tLi ne . c . e s t i ma t eo ft hes l o peoft heSe c ur i t yMa r ke tLi ne . d. e s t i ma t eo ft hes y s t e ma t i cr i s ko ft hes e c ur i t y . e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Eas y BETAESTI MATI ON a 12. Re gr e s s i ona n a l y s i sc a nbeus e dt oe s t i ma t e : a . be t a . b . t her i s k f r e er a t e . c . s t a nda r dde v i a t i on. d. v a r i a nc e . e . e xpe c t e dr e t ur n. Di ffic ul t yl e v e l :Eas y BETA d 13. Be t ame a s ur e sde pe ndhi ghl yo nt he : a . di r e c t i onoft hema r k e tv a r i a nc e . b . o v e r a l lc yc l eoft hema r k e t . c . v a r i a nc eoft hema r k e ta nda s s e t ,bu tno tt he i rc omo v e me nt . d. c o v a r i a nc eoft hes e c ur i t ywi t ht hema r ke ta n dho wt he ya r ec o r r e l a t e d. e . Al loft hea bo v e . Di ffic ul t yl e v e l :Me di um

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BETA b 14. Thef or mul af orc a l c u l a t i n gb e t ai sgi v e nb yt hedi v i di ngt h e_ _________ _oft h es t oc kwi t ht he ma r ke tpor t f ol i ob yt he______ _____o ft hema r ke tpor t f ol i o . a . v a r i a nc e ;c o v a r i a nc e b . c o v a r i a nc e ;v a r i a nc e c . s t a nda r dde v i a t i on;v a r i a nc e d. e xpe c t e dr e t ur n;va r i a nc e e . e xpe c t e dr e t ur n;c ov a r i a nc e Di ffic ul t yl e v e l :Me di um BETAANDCHARACTERI STI CLI NE b 15. Thes l opeoft hec ha r a c t e r i s t i cl i nei st hee s t i ma t e d: a . i nt e r c e pt . b . be t a . c . uns y s t e ma t i cr i s k . d. ma r k e tv a r i a n c e . e . ma r k e tr i s kp r e mi um. Di ffic ul t yl e v e l :Me di um CYCLI CALBUSI NESSANDBETA b 16. Co mpa ni e st ha tha v ehi g hl yc y c l i c a ls a l e swi l lha v ea : a . l o wbe t ai fs a l e sa r ehi ghl yde pe nde n tont h ema r ke tc y c l e . b . hi ghb e t ai fs a l e sa r ehi ghl yde pe nde ntont hema r ke tc y c l e . c . hi ghb e t ai fs a l e sa r ei nde p e nde ntont hema r ke tc y c l e . d. Al loft hea bo v e . e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um I NDUSTRYORFI RM BETA b 17. Be t a sma yv a r ys ubs t a nt i a l l ya c r os sa ni ndus t r y .Thede c i s i o nt ous et hei nd us t r yorfir m be t a : t oe s t i ma t et hec os tofc a pi t a lde p e ndson a . ho ws ma l lt hee s t i ma t i one r r o r sa r eofa l lbe t a sa c r os si ndus t r i e s . b . ho ws i mi l a rt hefir m' sop e r a t i onsa r et ot heope r a t i onsofa l lot he rfir msi nt hei ndus t r y . c . whe t he rt hec o mpa n yi sal e a de rorf ol l o we r . d. t hes i z eoft hec ompa n y ' spubl i cfloa t . e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um BETA b 18. Be t ai sus e f uli nt hec a l c ul a t i o noft h e : a . c ompa n y' sv a r i a nc e . b . c ompa n y' sdi s c ountr a t e . c . c ompa n y' ss t a nda r dde vi a t i on. d. uns y s t e ma t i cr i s k . e . c ompa n y' sma r ke tr a t e .

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Di ffic ul t yl e v e l :Me di um PROJ ECTANDFI RM BETA c 19. Fo ramul t i pr oduc tfir m,i fapr oj e c t ' sbe t ai sdi ffe r e ntf r omt h a toft heo v e r a l lfir m,t he nt he : a . CAPM c a nnol on ge rbeus e d. b . pr o j e c ts hou l dbedi s c ount e dus i n gt h eo v e r a l lfir m' sbe t a . c . pr o j e c ts hou l dbedi s c ount e da tar a t ec o mme ns ur a t ewi t hi t so wnbe t a . d. pr o j e c ts hou l dbedi s c ount e da tt hema r ke tr a t e . e . pr o j e c ts hou l dbedi s c ount e da tt heTbi l lr a t e . Di ffic ul t yl e v e l :Me di um FI RM’ SBETA e 20. Thepr obl e mofu s i ngt heo v e r a l lfir m' sbe t ai ndi s c ount i ngpr oj e c t sofdi ffe r e ntr i s ki st he : a . fir mwoul da c c e p tt ooma n yhi ghr i s kpr o j e c t s . b . fir mwoul dr e j e c tt o oma n yl o wr i s kpr o j e c t s . c . fir mwoul dr e j e c tt o oma n yhi ghr i s kpr o j e c t s . d. fir mwoul da c c e p tt ooma n yl o wr i s kpr oj e c t s . e . Bo t hAa ndB. Di ffic ul t yl e v e l :Me di um ASSETBETA e 21. Thea s s e tbe t ao fal e v e r e dfir mi sg e ne r a l l y: a . e qua lt ot hee qui t ybe t a . b . di ffe r e ntf r omt hee q ui t ybe t a . c . di ffe r e ntf r omt hede btbe t a . d. t hes i mpl ea ve r a geoft hee qu i t yb e t aa ndde btbe t a . e . Bo t hBa ndC. Di ffic ul t yl e v e l :Me di um LEVEREDVS. UNLEVEREDBETA d 22. Co mpa r i n gt woot h e r wi s ee qua lfir ms , t h eb e t aoft hec ommons t oc kofal e v e r e dfir mi s _______ _____t ha nt h eb e t aoft hec o mmons t oc kofa nu n l e v e r e dfir m. a . e qua lt o b . s i gni fic a nt l yl e s s c . s l i gh t l yl e s s d. gr e a t e r e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um DETERMI NANTSOFBETA d 23. Thebe t aofafir mi sde t e r mi ne db ywhi c hoft hef ol l o wi n gfir mc h a r a c t e r i s t i c s ? a . Cy c l e si nr e v e nue s b . Ope r a t i n gl e v e r a g e c . Fi na nc i a ll e v e r a g e

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d. Al loft hea bo v e . e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um

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FACTORSAFFECTI NGBETA b 24. Thebe t aofafir mi smor el i k e l yt obehi ghunde rwha tt woc ondi t i ons ? a . Hi g hc y c l i c a lb us i ne s sa c t i vi t ya n dl o wope r a t i ngl e v e r a g e b . Hi g hc y c l i c a lb us i ne s sa c t i vi t ya n dhi gho pe r a t i ngl e v e r a g e c . Lo wc y c l i c a lb us i ne s sa c t i vi t ya ndl o wfina nc i a ll e v e r a ge d. Lo wc y c l i c a lb us i ne s sa c t i vi t ya ndl o wope r a t i ngl e v e r a g e e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um CYCLI CALEARNI NGS a 25. Afir m wi t hc y c l i c a le a r n i n gsi sc ha r a c t e r i z e db y : a . r e v e nuepa t t e r nst ha tv a r ywi t ht hebus i ne s sc y c l e . b . hi ghl e v e l sofde bti ni t sc a pi t a ls t r uc t ur e . c . hi ghfix e dc os t s . d. hi ghp r i c ep e runi t . e . l o wc on t r i b ut i onma r gi ns . Di ffic ul t yl e v e l :Me di um OPERATI NG ANDFI NANCI ALLEVERAGE c 28. Afir m wi t hhi g ho p e r a t i n gl e v e r a gei sc ha r a c t e r i z e db y_ _________whi l eo newi t hhi gh fina nc i a ll e v e r a gei sc ha r a c t e r i z e db y_ ________ _. a . l o wfix e dc os tofpr oduc t i o n;l o wfix e dfina nc i a lc os t s b . hi ghv a r i a bl ec os tofpr oduc t i on;hi ghv a r i a bl efina nc i a lc os t s c . hi ghfix e dc os t sofpr oduc t i on;hi ghfix e dfina nc i a lc os t s d. l o wc os t so fp r odu c t i on;hi ghfix e dfin a nc i a lc os t s e . hi ghfix e dc os t sofpr oduc t i on;l o wv a r i a bl efina nc i a lc os t s Di ffic ul t yl e v e l :Me di um DETERMI NANTSOFBETA b 29. Fi r mswh os er e v e nue sa r es t r on gl yc y c l i c a la ndwhos eope r a t i ngl e v e r a g ei shi gha r el i k e l yt o ha v e : a . l o wbe t a s . b . hi ghb e t a s . c . z e r obe t a s . d. ne g a t i v ebe t a s . e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um DETERMI NANTSOFBETA e 30. Ani ndus t r yi sl i k e l yt oha v eal o wbe t ai ft he : a . s t r e a mofr e v e nue si ss t a bl ea ndl e s sv ol a t i l et ha nt hema r k e t . b . e c onomyi si nar e c e s s i on. c . ma r k e tf ori t sg oodsi sun a ffe c t e db yt hema r ke tc y c l e . d. Bo t hAa ndB. e . Bo t hAa ndC.

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Di ffic ul t yl e v e l :Me di um ASSETANDEQUI TYBETAS a 31. Fo rt hel e v e r e dfir mt hee qui t ybe t ai s______ ____t hea s s e tbe t a . a . gr e a t e rt ha n b . l e s st ha n c . e qua lt o d. s ome t i me sgr e a t e rt ha na nds ome t i me sl e s st ha n e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um LI QUI DI TY e 32. Al le l s ee qu a l , amor el i qui ds t oc kwi l lha v eal o we r______ __. a . be t a b . ma r ke tpr e mi um c . c os tofc a pi t a l d. Bot hAa ndB. e . Bot hAa ndC. Di ffic ul t yLe v e l :Chal l e ng e LI QUI DI TY d 33. Twos t oc kma r ke tba s e dc os t sofl i qui di t yt ha ta ffe c t st hec o s tofc a pi t a la r et he : a . bi da s ks pr e a da ndt hes pe c i a l i s ts pr e a d . b . ma r ke ti mpa c tc os ta ndt hebr oke r a g ec os t s . c . i n ve s t orop por t uni t yc o s ta ndt hebr o k e r a g ec os t s . d. bi da s ks pr e a da ndt hema r ke ti mpa c tc os t s . e . Non eo ft hea bo ve . Di ffic u l t yLe v e l :Me di um ADVERSESELECTI ON b 34. Whe nas pe c i a l i s ti sc a ugh ti nt hemi ddl eo fat r a debe t we e na ni nf or me da nda nuni f or me d t r a de r swhi c he ffe c t i v e l ye l i mi na t e st hes pr e a do rc a us e sal o s si ss ub j e c tt o : a . ma r ke ti mpa c tc os t s . b . a dv e r s es e l e c t i on. c . b r oke r ' squo t a t i o nbi a s . d. i n c r e a s i n gt h enu mbe rofun i nf o r me dt r a de r s . e . Non eo ft hea bo ve . Di ffic ul t yLe v e l :Cha l l e ng e

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I I I .

PROBLEMS

WEIGHTED AVERAGE COST OF CAPITAL c 35. 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? a. 7.10 % b. 7.39 % c. 10.38 % d. 10.65 % e. 11.37 % Di ffic ul t yl e v e l :Me di um WEIGHTED AVERAGE COST OF CAPITAL d 36. 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? a. 6.14% b. 6.54% c. 8.60% d. 9.14% e. 9.45% Di ffic ul t yl e v e l :Me di um WEIGHTED AVERAGE COST OF CAPITAL c 37. 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? a. .33 b. .40 c. .50 d. .60 e. .67 Di ffic ul t yl e v e l :Me di um

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WEIGHTED AVERAGE COST OF CAPITAL d 38. 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? a. 5.3% b. 5.8% c. 6.3% d. 6.9% e. 7.2% Di ffic ul t yl e v e l :Me di um CAPM d 39. TheCon s ol i da t e dTr a ns f e rCo .i sa na l l e qu i t yfina nc e dfir m. Thebe t ai s. 75 , t hema r ke tr i s k pr e mi umi s8% a ndt her i s k f r e er a t ei s4%.Wha ti st hee xpe c t e dr e t ur nofCons ol i da t e d? a . 7% b . 8% c . 9% d. 10% e . 13% Di ffic ul t yl e v e l :Eas y CAPM a 40. As s u mi ngt heCAPM orone f a c t ormode lh o l ds , wha ti st hec os tofe qui t yf orafir mi ft he fir m' se qui t yha sabe t aof1. 2 ,t her i s k f r e er a t eofr e t ur ni s2 %, t hee xpe c t e dr e t ur nont he ma r ke ti s9%,a ndt her e t ur nt ot hec omp a n y' sde bti s7%? a . 10. 4% b . 10. 8% c . 12. 8% d. 14. 4% e . Noneoft hea bo v e . Di ffic ul t yl e v e l :Me di um EQUI TYBETA b 41. Thec os tofe qui t yf orRy a nCor por a t i o ni s8. 4 %. I ft hee xpe c t e dr e t ur nont hema r k e ti s10% a ndt her i s k f r e er a t ei s5%, t he nt hee qu i t ybe t ai s___. a . 0. 48 b . 0. 68 c . 1. 25 d. 1. 68 e . I mpos s i b l et oc a l c ul a t ewi t hi n f or ma t i ongi v e n. Di ffic ul t yl e v e l :Me di um

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CALCULATI NGBETA b 43. Sup pos et heBa r ge sCor por a t i o n' sc ommons t oc kha sa ne xpe c t e dr e t ur nof12%. As s umet ha t t her i s k f r e er a t ei s5%, a ndt hema r ke tr i s kpr e mi umi s6 %. I fnouns y s t e ma t i ci nflue nc e a ffe c t e dBa r g e s ' r e t ur n, t heb e t af orBa r g e si s______. a . 1. 00 b . 1. 17 c . 1. 20 d. 2. 50 e . I ti si mpos s i b l et oc a l c ul a t ewi t ht hei n f or ma t i ongi v e n. Di ffic ul t yl e v e l :Me di um ASSETBETA a 44. Sl i ppe r ySl op eRoofCont r a c t i n gha sa ne qui t ybe t aof1 . 2,c a pi t a ls t r uc t ur ewi t h2/ 3de bt , a nd az e r ot a xr a t e . Wh a ti si t sa s s e tbe t a ? a . 0. 40 b . 0. 72 c . 1. 20 d. 1. 80 e . Noneoft hea bo v e Di ffic ul t yl e v e l :Me di um ASSETBETA e 45. TheTe mpl a t eCor por a t i onha sa ne q u i t ybe t aof1. 2a ndade b tbe t aof. 8.Thefir m' sma r k e t v a l uede btt oe qui t yr a t i oi s. 6. Te mpl a t eha saz e r ot a xr a t e . Wh a ti st hea s s e tbe t a ? a . 0. 70 b . 0. 72 c . 0. 96 d. 1. 04 e . 1. 05 Di ffic ul t yl e v e l :Me di um WACC c 46. TheNuPr e s sVa l e tCo .ha sa ni mp r ov e dve r s i onofi t shot e ls t a nd . Thei n v e s t me ntc o s ti s e xpe c t e dt obe$ 72mi l l i ona n dwi l lr e t ur n$1 3. 5mi l l i onf or5y e a r si nne tc a s hflo ws .Th er a t i o ofde b tt oe qu i t yi s1t o1.Thec os to fe qui t yi s13%, t hec os tofde bti s9%, a ndt het a xr a t ei s 34%. Thea ppr opr i a t edi s c ountr a t e , a s s umi n ga v e r a ger i s k , i s : a . 8. 65% b . 9% c . 9. 47% d. 10. 5% e . 13% Di ffic ul t yl e v e l :Eas y

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SOLUTI ONS

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04+( 1. 1 . 0 8)=. 128 Re=. De bt : 80 , 000 $1 , 000=$80m Common : 4m  $40=$160m To t a l=$80m+$160m=$240m    $80m  $160m WACC  .085(1  .35) .085333  .018417 .10375 = .128      $240m  $240m 10. 38 %

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De bt : $500, 000 1. 02=$. 51m Pr e f e r r e d: 40 , 000 $34=$1. 36m Common : 104, 000 $20=$2 . 08 m To t a l=$. 51 m +$ 1. 36m+$2. 08m=$3. 95m    $.51m   $1.36m  $2.08m .07(1 .34) .057924  .027544 .08    .11   WACC     $3.95m   $3.95m  $3.95m  .005965 .091433 9.14 percent

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11]+[ ( 1–We) . 05)=. 11We+. 05 . 05We;. 04=. 06We;We= . 09=[ We . 6 7% =33. 33 %;De bt 66. 67 %;Wd=1 We=100% –66. e qui t yr a t i o=3 3. 33%  66. 67% =. 50

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De bt : 6, 0 00 $1, 000 . 99=$5 . 94m Common : 210, 000 $36=$ 7. 56 m To t a l=$5. 94 m +$7. 56 m=$13. 50m ( $1 . 593 1. 04 ) $36]+. 04=. 08602 Re=[ Ent e r Sol v ef or

4. 89 N

I / Y 7. 250

990 PV

70 10 00 PMT FV

   $5.94m  $7.56m WACC  .07250 (1 .34)  .04817  .02105 .06922 .08602   $ 13 . 50 m $ 13 . 50 m     =6. 9% 3 9. . 04+0. 7 5( . 08)=. 10=10% 4 0. Rs=Rf+( Rm-Rf )=. 02+1. 2( . 09-. 02)=. 104=10. 4% 4 1. Rs=Rf+ ( Rm-Rf ) ;8 . 4=. 0 5+ ( . 10. 05) ; =. 68 4 2. Rs=Rf+( Rm-Rf )=. 05+1. 6( . 04)=. 11 4=11. 4% 4 3. Rs=Rf+( Rm-Rf ) ;. 12=. 05+( . 06 ) ; =. 07 / . 0 6=1. 17 4 4. A=( E/ ( D+e . )E=( 1/ 3) ( 1. 2 )=. 40 4 5. 8( . 6/ 1. 6)+1. 2( 1/ 1. 6)=1. 05 4 6. WACC=. 09( 1. 34) ( . 5)+. 13( . 5)=. 029 7+. 065=. 0947=9. 47%

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