1.

What two components typically comprise a company's capital structure, and therefore its WACC?

• a.) Equity and interest
• b.) Debt and equity
• c.) Debt and interest
• d.) Equity and assets

2. Using the following variables, calculate an organization's cost of debt on a $100,000 bond.

• R_f: 2%
• Credit-risk rate: 6%
• t: 20%

• a.) $7,840
• b.) $8,000
• c.) $1,600
• d.) $6,400

3. The capital asset pricing model is useful for __________.

• a.) making decisions about which potential future projects to pursue
• b.) determining whether an asset's expected return will offset its susceptibility to market risk
• c.) estimating the value of an equity using the bond yield
• d.) determining the net present value of an organization

4.

	Company A	Company B
Market Value of Equity	$400,000	$200,000
Market Value of Debt	$200,000	$500,000
Cost of Equity	10%	8%
Cost of Debt	2%	2%
Tax Rate	25%	35%

Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 6%?

• a.) Only Company A.
• b.) Both Company A and Company B.
• c.) Neither Company A nor Company B.
• d.) Only Company B.