1. The risk free rate of return is 2.5% and the market return is 8%. Rogue Transport has a beta of 2.2 and a standard deviation of returns of 28%. Rogue Transport's marginal tax rate is 35%. Analysts expect Rogue Transport's dividends to grow by 6% per year for the foreseeable future. Using the capital asset pricing model, what is Rogue Transport's cost of retained earnings?
a. 17.7%
b. 19.6%
c. 14.6%
d. 16.4%
2. Which of the following should NOT be considered when calculating a firm's WACC?
a. cost of newly issued preferred stock
b. after-tax cost of accounts payable
c. cost of newly issued common stock
d. after-tax YTM on a firm's bonds