7. (TCO 5, 6 and 7) Which one of the following is a correct statement regarding

Question

7. (TCO 5, 6 and 7) Which one of the following is a correct statement regarding a firm's weighted average cost of capital (WACC)? (Points : 4)
the WACC can be used as the required return for all new projects.
the WACC of a leveraged firm will decrease when the tax rate decreases.
an increase in the market risk premium will tend to decrease a firm's WACC.
the WACC is a starting point for the subjective approach to setting discount rates.
a reduction in the risk level of a firm will tend to increase the firm's WACC.


8. (TCO 5, 6 and 7) The preferred stock of Blue Sky Air pays an annual dividend of $7.25 a share and sells for $54 a share. The tax rate is 35 percent. What is the firm's cost of preferred stock? (Points : 4)
8.56 percent
9.32 percent
11.85 percent
13.43 percent
14.47 percent

Explanation / Answer

11.85 percent

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