1. What asset pricing model does the WACC use to compute equity capital costs? In this model, what does the market risk premium and the Beta, respectively, seek to address? Using this model that you described, what would be the cost of equity if the Beta is 0? Is a Beta of -1 even possible, and if it is, what would it suggest?
2. The market price of ABC stock is $31 when Jacky places a limit buy order through broker @ $30 for 1,000 shares. At the same time, there are four different sell orders entering into the market: • A sell order @ market price for 1,500 shares • A sell order @ $30.5 for 600 shares • A sell order @ 29.5 for 200 shares • A sell order @ limit 30 stop 29.5 for 600 shares What is the average cost of Jacky’s transaction for each share of ABC stock (assume there is no broker’s commission in this case)?
a. $29.5
b. $29.875
c. $29.375
d. $30