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? If a firm earns the WACC as an average return on its average-risk assets, then: As debt is added to the capital structure, the: An implicit cost of increasing the proportion of debt in a firm's capital structure is that: A firm is considering a project that will generate perpetual cash flows of $50,000 per year beginning next year

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?

$4.86

2. If a firm earns the WACC as an average return on its average-risk assets, then:

all investors will earn their minimum required rate of return

3. As debt is added to the capital structure, the:

cost of debt can be expected to rise

4. An implicit cost of increasing the proportion of debt in a firm's capital structure is that:

shareholders will demand a higher rate of return

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?

$416,667

6. A firm's WACC:

is a benchmark discount rate that is adjusted for the riskiness of each project

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?

tax rate

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.

13.5%

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%?

21.70%

10. For a company that pays no corporate taxes, its WACC will be equal to:

the expected return on it assets