1. Iowa Co. tries to decide their cost of capital for one of their division. The company runs several different businesses. They look for similar firms with the same operation as their division. The approach to find the cost of capital is called
systematic
pure play
subjective
beta adjustment
2. The Virginia Inc.’s cost of equity is 16 percent and its after-tax cost of debt is 4.9 percent. What is the firm's weighted average cost of capital (WACC) if its equity accounts for 60% of the firm value (E/V=60%)?
11.56 percent
10.93 percent
13.82 percent
12.14 percent
3. Unsystematic risk:
I. is also called unique risk.
II. is also called firm-specific risk.
III. affects a limited number of assets.
IV. affects a large number of assets.
II and IV only
I and III only
I and IV only
I, II, and III only
4. The Texas Inc. has a cost of equity of 16.5 percent and a pre-tax cost of debt of 9.4 percent. The firm's target weighted average cost of capital is 13 percent and its tax rate is 30 percent. What is the firm's debt-equity ratio?
0.54
0.46
0.37
0.69
5. Oregon Co. issues only common stock and coupon bonds. The firm has a debt-equity ratio of 1/4. The cost of equity is 13.7 percent and the pre-tax cost of debt is 9.4 percent. The tax rate is 35 percent. What is its weighted average cost of capital (WACC)?
13.07 percent
10.66 percent
11.80 percent
12.18 percent