Page | 1
FINA 3313 EXAM 2: QUIZZES &
HWPM 2026 ACTUAL QUESTIONS
WITH VERIFIED ANSWERS.
Mavs Inc. wishes to determine its cost of common stock equity,
rs. The market price, P0, of its common stock is $40.84 per
share. The firm expects to pay a dividend, D1, of $4.20 at the
end of the coming year, 2021. The dividends paid on the
outstanding stock over the past 6 years (2015-2020) were as
follows:
2015-$3.60
2016-3.65
2017-3.70
2018-3.85
2019-4.00
2020-4.10
What is the cost of common stock equity financing? - correct
answer-g= (4..60)^(1/5) - 1
g= 1.02635 - 1
g= 0.02635
requity= (4..84) + 0.02635
requity= 0.129190 = 12.92
, Page | 2
Spanolia LLC is estimating its WACC. Its bonds have a 12
percent coupon, paid semiannually, a current maturity of 20
years, and sell for 1,000 USD. The firm's marginal tax rate is 40
percent. What is the after-tax cost of debt? - correct answer-
PMT = (1000)(0.12)/2 = -60
PV= 1000
FV= -1000
N= 20(2)= 40
CPT I/Y = 12%
ATCOD= (1-Tc)(rdebt)
ATCOD= (1-0.40)(0.12)
ATCOD= 0.072 = 7.2%
LUVFINANCE, Inc. is estimating its WACC. The firm could sell,
at par, $100 preferred stock that pays a 10 percent annual
dividend and incurs 6.47% flotation costs. What is the cost of
new preferred stock financing? - correct answer-= (100-6.47) =
93.53
rpreferred= (10) / (93.53)
rpreferred= 0.106918 = 10.69
Compute the weight of common equity that should be used in
the firm's WACC calculation if the market value of the firm's
debt is $58 million, the market value of the firm's preferred
, Page | 3
stock is $7 million and the market value of the firm's common
equity is $111 million. - correct answer-We= E/V
We= (111) / (111+58+7)
We= (111) / (176)
We= 0.63 = 63%
Preston Corp. is estimating its WACC. Its target capital
structure is 20 percent debt, 20 percent preferred stock, and 60
percent common equity. Its bonds have a 12 percent coupon,
paid semiannually, a current maturity of 20 years, and sells for
$1,100. The firm could sell, at par, $100 preferred stock which
pays a 5.81 percent annual dividend, but flotation costs of 5
percent would be incurred. Preston's beta is 1.2, the risk-free
rate is 3 percent, and the market risk premium is 5 percent. The
firm's marginal tax rate is 40 percent. What is Preston's
WACC? - correct answer-COE= 0.03+1.2(0.05) = 0.09
COPS= (100)(0.0581)/((100)-(100*0.05))
COPS= (5.81) / (95) = 0.06116
COD:
N= 20(2) = 40
PMT= 1000(0.12)/2 = -60
PV= 1100
FV= -1000
CPT I/Y= 5.38(2) = 10.77
, Page | 4
WACC=
(0.06)(0.09)+(0.2)(0.06116)+(0.2)(10.77)(1-0.4)
(0.054) + (0.012232) + (2.154)(0.6)
(0.054) + (0.012232) + (1.2924)
5.4 + 1.22 + 1.29
7.91
What is Amazon's WACC? - correct answer-14.27
The cost of capital for a firm with a 60/40 debt/equity split,
5.74% cost of debt, 15% cost of equity, and a 35% tax rate
would be - correct answer-COC= (0.4)(.15)+(0.6)(0.0574*(1-
0.35))
COC= 0.06 + 0.6(0.03731)
COC= 0.06 + 0.022386
COC= 0.082386 = 8.24
Which component is more likely to be biased if book values are
used in the calculation of WACC rather than market values? -
correct answer-Common stock
FINA 3313 EXAM 2: QUIZZES &
HWPM 2026 ACTUAL QUESTIONS
WITH VERIFIED ANSWERS.
Mavs Inc. wishes to determine its cost of common stock equity,
rs. The market price, P0, of its common stock is $40.84 per
share. The firm expects to pay a dividend, D1, of $4.20 at the
end of the coming year, 2021. The dividends paid on the
outstanding stock over the past 6 years (2015-2020) were as
follows:
2015-$3.60
2016-3.65
2017-3.70
2018-3.85
2019-4.00
2020-4.10
What is the cost of common stock equity financing? - correct
answer-g= (4..60)^(1/5) - 1
g= 1.02635 - 1
g= 0.02635
requity= (4..84) + 0.02635
requity= 0.129190 = 12.92
, Page | 2
Spanolia LLC is estimating its WACC. Its bonds have a 12
percent coupon, paid semiannually, a current maturity of 20
years, and sell for 1,000 USD. The firm's marginal tax rate is 40
percent. What is the after-tax cost of debt? - correct answer-
PMT = (1000)(0.12)/2 = -60
PV= 1000
FV= -1000
N= 20(2)= 40
CPT I/Y = 12%
ATCOD= (1-Tc)(rdebt)
ATCOD= (1-0.40)(0.12)
ATCOD= 0.072 = 7.2%
LUVFINANCE, Inc. is estimating its WACC. The firm could sell,
at par, $100 preferred stock that pays a 10 percent annual
dividend and incurs 6.47% flotation costs. What is the cost of
new preferred stock financing? - correct answer-= (100-6.47) =
93.53
rpreferred= (10) / (93.53)
rpreferred= 0.106918 = 10.69
Compute the weight of common equity that should be used in
the firm's WACC calculation if the market value of the firm's
debt is $58 million, the market value of the firm's preferred
, Page | 3
stock is $7 million and the market value of the firm's common
equity is $111 million. - correct answer-We= E/V
We= (111) / (111+58+7)
We= (111) / (176)
We= 0.63 = 63%
Preston Corp. is estimating its WACC. Its target capital
structure is 20 percent debt, 20 percent preferred stock, and 60
percent common equity. Its bonds have a 12 percent coupon,
paid semiannually, a current maturity of 20 years, and sells for
$1,100. The firm could sell, at par, $100 preferred stock which
pays a 5.81 percent annual dividend, but flotation costs of 5
percent would be incurred. Preston's beta is 1.2, the risk-free
rate is 3 percent, and the market risk premium is 5 percent. The
firm's marginal tax rate is 40 percent. What is Preston's
WACC? - correct answer-COE= 0.03+1.2(0.05) = 0.09
COPS= (100)(0.0581)/((100)-(100*0.05))
COPS= (5.81) / (95) = 0.06116
COD:
N= 20(2) = 40
PMT= 1000(0.12)/2 = -60
PV= 1100
FV= -1000
CPT I/Y= 5.38(2) = 10.77
, Page | 4
WACC=
(0.06)(0.09)+(0.2)(0.06116)+(0.2)(10.77)(1-0.4)
(0.054) + (0.012232) + (2.154)(0.6)
(0.054) + (0.012232) + (1.2924)
5.4 + 1.22 + 1.29
7.91
What is Amazon's WACC? - correct answer-14.27
The cost of capital for a firm with a 60/40 debt/equity split,
5.74% cost of debt, 15% cost of equity, and a 35% tax rate
would be - correct answer-COC= (0.4)(.15)+(0.6)(0.0574*(1-
0.35))
COC= 0.06 + 0.6(0.03731)
COC= 0.06 + 0.022386
COC= 0.082386 = 8.24
Which component is more likely to be biased if book values are
used in the calculation of WACC rather than market values? -
correct answer-Common stock
