1. Peter's Audio has a yield to maturity on its debt of 7.8 percent, a cost of equity of 12.4 percent, and a cost of preferred stock of 8 percent. The firm has 105,000 shares of common stock outstanding at a market price of $22 a share. There are 25,000 shares of preferred stock outstanding at a market price of $45 a share. The bond issue has a total face value of $1.5 million and sells at 98 percent of face value. If the tax rate is 34 percent, what is the weighted average cost of capital?

9.22%

9.04%

9.45%

8.69%

8.54%

2. Why might two different investors select two different potential investments if one investment had the highest return and the highest risk over the other investment?

3. What is the present value of a perpetuity of $25,000 a year if the appropriate discount rate is 6%?