1. A house is priced at $500,000. If a down payment of $100,000 is made, and a payment of $6,000 every month thereafter is required, how many months will it take to pay for the house? Interest is charged at a rate of 12%, compounded monthly.
a. 92
b. 110
c. 125
d. 180
2. A firm issued two types of stocks: $12M common stock and $10M preferred stock. The common stockholders expect a 15% rate of return while preferred stockholders expect a 8% rate of return. The firm has $5M in loans at an average rate of 7%. The firm has raised $8M by selling bonds at an average rate of 6%. What is the firm’s cost of capital with a tax rate of 35%?
a. 8.2%
b. 8.6%
c. 9.0%,
d. 9.4%