1. If an investor opens a position with a long call and short put, what investment does the net payoff most closely match and why?

2. What are the determinants of the cost of capital in a corporation? Explain.

3. DISCOUNTED PAYBACK

Project L costs $40,000, its expected cash inflows are $9,000 per year for 8 years, and its WACC is 11%. What is the project's discounted payback? Round your answer to two decimal places.

4. Beige Inc. plans to issue preferred stock that pays an $11.50 dividend per share and sells for $120 per share in the market. It will cost 4 percent, or $4.80 per share, to issue the new preferred stock, so Beige will net $115.20 per share. Which of the following is Beige's cost of preferred stock? (Round off the answer to two decimal places.)

a. 8.89% b. 12.25% c. 11.50% d. 15.20% e. 9.98%