1. Tuff Company is financed by $3 million in debt, $1 million in preferred stocks, and $6 million in common stocks. The pre-tax cost of debt is 6%, the cost of preferred stock is 8%, and the cost of equity is 12%. Calculate the weighted average cost of capital. Assume 20% tax rate.
9.44%
6.29%
7.60%
8.26%
2. A stock has an expected return of 12.3 percent and a beta of 1.1. The risk-free rate is 2.5 percent. What is the slope of the security market line?
7.15 percent
6.82 percent
8.91 percent
9.97 percent