Problem 1: If the pure expectations hypothesis holds, what does the market expect that the one-year rate will be one year from now?
a. 6.0%
b. 5.5%
c. 6.5%
d. 5.0%
e. 7.0%
Burlees Inc.'s CFO has collected the following information to calculate its WACC:
- The company's capital structure consists of 40% debt and 60% common stock.
- The company has 25-year, 12% annual coupon bonds that have a face value of $1,000 and sell for $1,252.
- The company uses the CAPM to calculate the cost of common stock. Currently, the risk-free rate is 5% and the market risk premium is 6%. The company's common stock has a beta of 1.6.
- The company's tax rate is 40%.
Problem 2: What is the company's weighted average cost of capital (WACC)?
a. 10.5%
b. 12.5%
c. 11.5%
d. 11.0%
e. 12.0%
Problem 3: What is the company's after-tax cost of debt?
a. 4.80%
b. 8.33%
c. 7.20%
d. 3.74%
e. 5.62%
Problem 4: What is the company's cost of common equity?
a. 18.91%
b. 14.60%
c. 17.60%
d. 14.00%
e. 9.65%