1. Ultimately, a firm's cost of capital is determined by: (select the best answer)
a. What the board of directors of the company decides it should be
b. Its cost of debt and equity capital
c. Its sources of capital
d. What investments a company makes
2. A company has target values of debt, preferred and common of $23MM, $16MM and $85MM. It has book values of debt, preferred and common of $66MM, $7MM and $18MM. It also has liquidation values of debt, preferred and common of $38MM, $19MM and $6MM. What weights should it use for purposes of estimating WACC?
a. Debt 18.6%; Preferred 12.9%; Common 68.5%
b. Debt 23.4%; Preferred 46.2%; Common 31.4%
c. Debt 60.3%; Preferred 30.2%; Common 9.5%
d. Debt 72.5%; Preferred 7.7%; Common 19.8%