1. Which one of the following statements related to WACC is correct for a firm that uses debt in its capital structure?
The WACC will decrease as the corporate tax rate decreases.
The WACC should decrease as the firm's debt-equity ratio increases.
The weight of equity is based on the number of shares outstanding and the book value per share.
The WACC will remain constant unless a firm retires some of its debt.
The weight assigned to preferred stock decreases as the market value of the stock increases.
2. Assume S = $62.50, deviation = 0.20, r = 0.03, div = 0.0, on a $60 strike call and 81 days until expiration. Given a delta = 0.7092, gamma = 0.0582, and theta = -0.0158, what is the PREDICTED call price, using the delta, gamma, theta approach, after 1 day, assuming a $0.50 rise in the stock price?
a. $4.364
b. $4.392
c. $4.376
d. $4.390