L11 WACC

Beta of stock is 1.3, Cost of equity=?

• 8.9%

• 5%

• 10%

• 3.9%

Tax rate 40%, after-tax cost of debt =

• 4.8%

• 2%

• 4%

• 6%

WACC of the comapny

• 13.1%

• 7.3%

• 14.9%

• 7.6%

Cost of equity can be determined by

• SML approch only

• SML and dividend growth model approach

• Dividend growth model only

• SML, dividend growth model and NPV approach

WACC of a firm is

• rate of return required by preferred stockholders

• maximum rate the firm should earn in its project

• rate of return required by bondholders

• overall rate of return a firm should earn on existing asset to maintain the value of stock