PrimaCare has a capital structure that consists of 7 million of debt, 2 million of preferred stock,
and 11 million of common equity, based upon current market values.
The firm's yield to maturity
on its bonds is 7.4, and investors require an 8 return on the firm's preferred and a 14 return on
PrimaCare's common stock. If the tax rate is 35, what is PrimaCare's WACC?
A) 12.25 B) 7.21 C) 8.12 D) 10.18
Question 2
The risk-return trade-off in managing a firm's working capital involves which of the following?
A) a trade-off between debt and equity
B) a trade-off between the firm's liquidity and its profitability
C) a trade-off between liquidity and activity
D) none of the above
