1. You were hired as a consultant to Locke Company, and you were provided with the following data: Target capital structure: 40% debt, 10% preferred, and 50% common equity. The interest rate on new debt is 8.00%, the yield on the preferred is 6.00%, the cost of retained earnings is 11.50%, and the tax rate is 40%. The firm will not be issuing any new stock. What is the firm's WACC?
A. 8.15%
B. 8.27%
C. 8.03%
D. 8.21%
E. 8.09%
2. McCarran-Ferguson Act:
a. is a U.S. Supreme Court case indicating that insurance is not an interstate commerce.
b. is decided by the U.S. congress and indicated that the continued regulation and taxation of insurance by the states is in public interest, and insurance business is exempt from federal antitrust law with some conditions.
c. is a U.S. Supreme Court case indicating that insurance is an interstate commerce.
d. is the head of the state insurance department.
e. none of the answers is correct.