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You are considering two mutually exclusive, equally risky, projects. Both have IRRs that exceed the WACC. Which of the following statements is CORRECT? Assume that the projects have normal cash flows, with one outflow followed by a series of inflows.

If a firm earns the WACC on its assets, then:

Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1= $1.45; P0 = $28.00; and g = 6.50% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?

Other things equal, a firm’s sustainable growth rate could increase as a result of:

A firm’s debt has a par value of $1,000,000.  The market value of this debt is $1,100,000. The coupon rate is 7% and the debt has 8 years left to maturity. Interest is paid annually. The tax rate is 40%. There are 100,000 shares of stock outstanding with a par value of $20 per share. The per share stock price is $25. What should be the approximate debt ratio for this firm?

Last month, Lloyd’s Systems analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm’s WACC. The Fed’s action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project’s forecasted NPV? Note that a project’s projected NPV can be negative, in which case it should be rejected.  Old WACC: 10.00% New WACC: 8.00% Year 0     1   2   3   Cash flows -$1,000 $410 $410 $410

A firm has 54,000 shares of common stock outstanding with a book value of $8 per share and a market value of $13. There are 17,000 shares of preferred stock with a book value of $18 and a market value of $22. There is a $1,000,000 face value bond issue outstanding that is selling at 106% of par. What weight should be placed on the debt when computing the firm’s WACC?

What is the approximate market price of preferred stock that pays an $8.00 dividend and has a book value of $100. The required return is 8.9% and the tax rate is 35%?

Individual stocks are:

Which one of the following bonds would be likely to exhibit a greater degree of interest rate risk?