Question #1: LUVFINANCE, Inc. is estimating its WACC. It is operating at its optimal capital structure. Its outstanding bonds have a 12 percent coupon, paid semiannually, a current maturity of 17 years, and sell for $1,162. It has 100,000 bonds outstanding. The firm can issue new 20-year maturity semiannual bonds at par but will incur flotation costs of $50 per bond (Hint: the coupon rate on the new bonds = the YTM on existing bonds). The firm could sell, at par, $100 preferred stock that pays a 12 percent annual dividend that is currently selling for $120. The firm currently has 1,000,000 shares of preferred stock outstanding. Rollins' beta is 0.81, the risk-free rate is 1.72 percent, and the market risk premium is 6 percent. The common stock currently sells for $100 a share and there are 5,000,000 shares outstanding. The firm's marginal tax rate is 40 percent. What is the WACC?

Question #2: The risk free rate currently have a return of 2.5% and the market risk premium is 7.21%. If a firm has a beta of 1.42, what is its cost of equity?

Question #3: Which of the following statements is most correct?

Group of answer choices

Since debt financing raises the firm's financial risk, raising a companys debt ratio will always increase the companys WACC.

Since debt financing is cheaper than equity financing, raising a companys debt ratio will always reduce the companys WACC.

Increasing a companys debt ratio will typically reduce the marginal cost of both debt and equity financing; however, it still may raise the companys WACC

Statements a and c are correct.

None of the statements above is correct.

Question #4 The cost of capital for a firm with a 60/40 debt/equity split, 3.67% cost of debt, 15% cost of equity, and a 35% tax rate would be