1) Company A can borrow money at a fixed rate of 7.5 percent or a variable rate set at prime plus 0.5 percent. Company B can borrow money at a variable rate of prime plus 1 percent or a fixed rate of 7 percent. Company A prefers a fixed rate and company B prefers a variable rate. Given this information, which one of the following statements is correct?

2) Compared to other options here, in A Company A saves .25% paying fixed And Company B pays .5% less paying variable.

3) Delta Importers has a pure discount loan with a face value of $180,000 due in one year. The assets of the firm are currently worth $265,000. The shareholders in this firm basically own a _____ option on the assets of the firm with a strike price of _____.

4) The Shoe Outlet has paid annual dividends of $.65, $.70, $.72, and $.75 per share over the last four years, respectively. The stock is currently selling for $9a share. What is this firm's cost of equity?

5) Hydro Systems has 15-year bonds outstanding with a coupon rate of 6 percent. Interest is paid annually. The face amount of each bond is $1,000. What is the company's pretax cost of debt if the bonds currently sell for $1,080?