1. Fama's Llamas has a weighted average cost of capital of 13 percent. The company's cost of equity is 15 percent, and its pretax cost of debt is 8.5 percent. The tax rate is 33 percent. What is the company's target debt-equity ratio? (Do not round your intermediate calculations.)
A. 0.2738
B. 0.4444
C. 0.2875
D. 0.2601
E. 0.2847
2. Which of the following statements is correct?
For a few firms in completely different industries, it is possible to have a correlation that approaches -2.0.
A correlation of -1.0 means that the two firms are uncorrelated or that they have no relationship.
Most common stocks have low correlation with each other since they operate in different industries.
None of these statements is correct.