1. A firm has 12,000 shares of common stock outstanding with a book value of $20 per share and a market value of $39. There are 5,000 shares of preferred stock with a book value of $10 and a market value of $26. There is a $400,000 face value bond issue outstanding that is selling at 87% of par. What weight should be placed on the preferred stock when computing the firm's WACC?
A. 7.25%
B. 13.74%
C. 11.48%
D. 15.09%
2. To calculate the present value of a business, the firm's free cash flows should be discounted at the firm's:
A. weighted-average cost of capital.
B. pre-tax cost of debt.
C. aftertax cost of debt.
D. cost of equity