1. Sharpe’s Electronic Store has 825,000 shares of common stock outstanding with a market price of $40 a share. The company also has 65,000 bonds outstanding that are quoted at 106% of face value. When the weighted average cost of capital is calculated, what weight should be given to the equity?
a. 53%
b. 68%
c. 32%
d. 29%
e. 47%
2. Matrix Pool Company just paid its annual dividend of $0.95 a share. The stock has a beta of 1.3. The return on the U.S. Treasury bill is 2.5 percent and the market risk premium is 6.9 percent. What is the cost of equity?
a. 9.46 percent
b. 9.87 percent
c. 10.12 percent
d. 10.37 percent
e. 11.47 percent