1. SIROM Scientific Solutions has $10 million of outstanding equity and $5 million of bank debt. The bank debt costs 5% per year. The estimated equity beta is 2. If the market risk premium is 9% and the risk-free rate is 3%, compute the weighted average cost of capital if the firm's tax rate is 30%.
A) 15.17%
B) 15.93%
C) 16.68%
D) 17.44%
2. Suppose you invest in 220 shares of Johnson and Johnson (JNJ) at $70 per share and 240 shares of Yahoo (YHOO) at $20 per share. If the price of Johnson and Johnson increases to $80 and the price of Yahoo decreases to $18 per share, what is the return on your portfolio?
A) 12.77%
B) 8.51%
C) 9.37%
D) 10.22%