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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.
4. The WACC is the required return on the firm's overall assets.
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