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Q1) Firm has notes payable of $1,546,000, long-term debt of $13,000,000, and total interest expense of $1,300,000. If firm pays 8 percent interest on its long-term debt, compute rate of interest does it pay on its notes payable?

 

a. 8.2%
b. 13.1%
c. 16.8%
d. 18.0%
e. 15.3%

 

Q2) Compute required rate of return for Mercury Inc., supoose that investors expect 5% rate of inflation in future. Real risk-free rate is equal to 3 percent and market risk premium is 5%. Mercury has beta of 2.0, and its realized rate of return has averaged 15 percent over last 5 years.

 

a. 15%
b. 16%
c. 17%
d. 18%
e. 20%

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