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What dividend is paid on preferred stock if investors require a 9% rate of return and the stock has a market value of $54 per share and a book value of $50 per share? A

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1. What dividend is paid on preferred stock if investors require a 9% rate of return and the stock has a market value of $54 per share and a book value of $50 per share?
   
   
   A.
   $2.92
   
   B.
   $4.50
   
   C.
   $4.68
   
   D.
   $4.86
2. If a firm earns the WACC as an average return on its average-risk assets, then:
   
   
   A.
   equityholders will be satisfied, but bondholders will not.
   
   B.
   bondholders will be satisfied, but equityholders will not.
   
   C.
   all investors will earn their minimum required rate of return.
   
   D.
   the firm is investing in only positive NPV projects.
3. As debt is added to the capital structure, the:
   
   
   A.
   WACC will continually decline.
   
   B.
   WACC will continually increase.
   
   C.
   cost of debt can be expected to rise.
   
   D.
   WACC will be unaffected.
4. An implicit cost of increasing the proportion of debt in a firm's capital structure is that:
   
   
   A.
   the firm's asset beta will increase.
   
   B.
   shareholders will demand a higher rate of return.
   
   C.
   the tax shield will not apply to the added debt.
   
   D.
   the cost of equity will decrease.
5. A firm is considering a project that will generate perpetual cash flows of $50,000 per year beginning next year. The project has the same risk as the firm's overall operations. If the firm's WACC is 12%, and its debt-to-equity ratio is 1.33, what is the most it could pay for the project and still earn its required rate of return?
   
   
   A.
   $313,283
   
   B.
   $375,094
   
   C.
   $416,667
   
   D.
   $554,167
6. A firm's WACC:
   
   
   A.
   is the proper discount rate for every project the firm undertakes.
   
   B.
   is used to value all of the firm's existing projects.
   
   C.
   is a benchmark discount rate that is adjusted for the riskiness of each project.
   
   D.
   is an informational value only and should never be used as a discount rate.
7. An increase in which one of the following is most apt to decrease the WACC of a firm that has both debt and equity in its capital structure?
   
   
   A.
   Firm's beta
   
   B.
   Market rate of return
   
   C.
   Tax rate
   
   D.
   Yield on preferred stock
8. Calculate a firm's WACC given that the total value of the firm is $2 million, $600,000 of which is debt, the pre-tax cost of debt is 10%, and the cost of equity is 15%. The firm pays no taxes.
   
   
   A.
   9.0%
   
   B.
   11.5%
   
   C.
   13.5%
   
   D.
   14.4%
9. A company's CFO wants to maintain a target debt-to-equity ratio of 1/4. If the WACC is 18.6%, and the pretax cost of debt is 9.4%, what is the cost of common equity assuming a tax rate of 34%?
   
   
   A.
   19.90%
   
   B.
   20.90%
   
   C.
   21.70%
   
   D.
   22.73%
10. For a company that pays no corporate taxes, its WACC will be equal to:
    
    
    A.
    the expected return on it assets.
    
    B.
    the expected return on its debt.
    
    C.
    the total value of its assets.
    
    D.
    the expected return on its equity.