1. A company has a capital structure (market values) which is 60% debt and 40% equity. Its cost of equity is 15%, and its pretax cost of debt is 8%. Its tax rate is 30%. What is the company's WACC?
7.44%
9.36%
12.48%
15.01%
2. The WACC is the overall return the firm must earn on its existing assets to maintain the value of its stock.
True / False
3. From what we know about the Modigliani-Miller propositions, if we decrease the corporate tax rate, then firms should use more debt relative to equity financing.
True / False
4. The WACC is the required return on the firm's overall assets.
True / False