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Bits n pieces Inc. is in the process of evaluating an international shipping warehouse that spans several acres. Obviously, they need a discount rate for their NPV calculation and will use the company's WACC. Use the information below to calculate the weighted average cost of capital (WACC):

The company has 1,000,000 shares on issue.

The shares trade at $17.90 and have a Beta of 1.20.

The expected return on the market is 6% and the risk-free rate is 3%.

The company has 20,000 bonds on issue.

The bonds trade at $102 and have a yield to maturity of 5%.

The corporate taxation rate is 27.5%.

Select one:

a. 7.23%

b. 5.075%

c. 12.85%

d. 6.66%

e. 6.29%

2.

Agency cost is a type of incentive problem that arises from the conflict of interest between the principal and the agent. How can the misalignment of interests be managed between the principal and the agent of a firm?

Select one:

a. The principals are the managers, the agents are the owners. The agents can make the ownership of the firm part of the agent’s remuneration.

b. The principals are the owners of the firm, the agents are the managers. The principals can make ownership of the firm part of the agents’ remuneration.

c. The principals and the agents are always the same since every business owner manages their own business.

d. There is nothing anyone can do but to just make sure that they are aware they can be reported to the Corporate Governance committee of the company.

3.

What are the operating cash flows (OCF) of a firm which has sales of $291,800, COGS of $65,400, depreciation of $115,000 and taxes of $33,420?

Select one:

a. $190,100

b. $291,800

c. $192,980

d. $171,230