Unit 3 - Milestone 3 ) Exam
Questions and Correct
Solutions
Company A
Market Value of Equity $250,000
Market Value of Debt $600,000
Cost of Equity 8%
Cost of Debt 2%
Tax Rate 35%
Company B
Market Value of Equity $200,000
Market Value of Debt $500,000
Cost of Equity 10%
Cost of Debt 2%
Tax Rate 30%
Based solely on their current weighted average cost of capital, which company should pursue an
investment opportunity with an expected return of 5%? - Correct Answers: Both Company A and
Company B
Curtis purchased stock with an initial share price of $140, and sold it when the share price was $119.
While he owned the stock, he earned $10 in dividends.
What was his total percentage return on the investment? - Correct Answers: -7.86%
Using the following variables, calculate an organization's cost of debt on a $500,000 bond.
Questions and Correct
Solutions
Company A
Market Value of Equity $250,000
Market Value of Debt $600,000
Cost of Equity 8%
Cost of Debt 2%
Tax Rate 35%
Company B
Market Value of Equity $200,000
Market Value of Debt $500,000
Cost of Equity 10%
Cost of Debt 2%
Tax Rate 30%
Based solely on their current weighted average cost of capital, which company should pursue an
investment opportunity with an expected return of 5%? - Correct Answers: Both Company A and
Company B
Curtis purchased stock with an initial share price of $140, and sold it when the share price was $119.
While he owned the stock, he earned $10 in dividends.
What was his total percentage return on the investment? - Correct Answers: -7.86%
Using the following variables, calculate an organization's cost of debt on a $500,000 bond.
