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Fern has preferred stock selling for 94.6 percent of par that pays an 8.4 percent annual coupon. What would be Fern's component cost of preferred stock?

- 8.40%
- 9.40%
- 8.88%
- 7.95%

**2)** If a company's current stock price is $85.00 and it is likely to pay a $4.00 dividend next year. Since analysts estimate the company will have a 11% growth rate, what is its expected return?

- 11.00%
- 4.44%
- 4.71%
- 15.71%

**3) **JackITs has 5.6 million shares of common stock outstanding, 1.6 million shares of preferred stock outstanding, and 26.00 thousand bonds. If the common shares are selling for $28.60 per share, the preferred share are selling for $14.10 per share, and the bonds are selling for 97.94 percent of par, what would be the weight used for equity in the computation of JackIT's WACC?

- 66.67%
- 33.33%
- 77.50%
- 76.93%

**4)** A manager believes his firm will earn a 17.5 percent return next year. His firm has a beta of 1.65, the expected return on the market is 15.5 percent, and the risk-free rate is 5.5 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.

- 26.575%, over-valued
- 22.0%, under-valued
- 26.575%, under-valued
- 22.0%, over-valued

**5)** Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

Time: 0 1 2 3

Project A Cash Flow -24,000 14,000 34,000 5,000

Project B Cash Flow -34,000 14,000 24,000 54,000

Use the PI decision rule to evaluate these projects; which one(s) should it be accepted or rejected?

- accept A, reject B
- accept both A and B
- accept neither A nor B
- reject A, accept B

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