04 (10 points: 5+5) #) Zeytin Company has 50 million shares outstanding. Each share sells for $10. The market value of the company debt is $300 million, and this leverage raises the market value of the firm by $70 taillion. Zeytin's share price is expected to grow 4% per year in perpetuity, and the discount rate for the company's unlevered cash flows is 10%. What is Zeytia's expected free cash flow at 05) (14 points : 212-4+6) Assume the following regression results for stocks A and B : RX = 0.03 + 0 7 Ratet ex , Ry -- 0.02 + 1 2 Ral + en R-0.20 (for Stock A) , R-012 (for Stock ) , Valpke) = 004 There is also Portfolio P, which has a weight of 0.6 in Stock A and 0.4 in Stock B. E = 10 (Som) = 'soom >-*300mm V = 800 m Find the following a) The variance of returns to : levered value i) Stock A R, E - - = You SEE + 7om 0,01% li) Stock B 800 m = - 0.10 -0.04 + 70 m FCF 43.8m il) Portfolio P h) Assume the following information for Bambi Company: PoS109/share, PVGO-528/share, E-510 , ROB-12%, Plowback ratio -80%. What is Bambi Company's discount rate? CoolRA, RB) - Aan = 0.0336 w tw + Iwawa Cos(Rai Ra) = 0.1282 P = + PUGO 109 - Senior + 2% E,- , (i+g1 where (Roel (6) - (0.12) 0.8 = 0.096 Page 6 of 11 b) The non-diversifiable and the diversifiable" risks for P. Be 0.6 (0.7) + 0.4(1.2) 0.90 5 - Best slep) 109 = 10 (1.094) 0.1282 -0.0324 + 0.0158 k = 13.53 % Non-di). Diversifiable 04 (10 points: 5+5) #) Zeytin Company has 50 million shares outstanding. Each share sells for $10. The market value of the company debt is $300 million, and this leverage raises the market value of the firm by $70 taillion. Zeytin's share price is expected to grow 4% per year in perpetuity, and the discount rate for the company's unlevered cash flows is 10%. What is Zeytia's expected free cash flow at 05) (14 points : 212-4+6) Assume the following regression results for stocks A and B : RX = 0.03 + 0 7 Ratet ex , Ry -- 0.02 + 1 2 Ral + en R-0.20 (for Stock A) , R-012 (for Stock ) , Valpke) = 004 There is also Portfolio P, which has a weight of 0.6 in Stock A and 0.4 in Stock B. E = 10 (Som) = 'soom >-*300mm V = 800 m Find the following a) The variance of returns to : levered value i) Stock A R, E - - = You SEE + 7om 0,01% li) Stock B 800 m = - 0.10 -0.04 + 70 m FCF 43.8m il) Portfolio P h) Assume the following information for Bambi Company: PoS109/share, PVGO-528/share, E-510 , ROB-12%, Plowback ratio -80%. What is Bambi Company's discount rate? CoolRA, RB) - Aan = 0.0336 w tw + Iwawa Cos(Rai Ra) = 0.1282 P = + PUGO 109 - Senior + 2% E,- , (i+g1 where (Roel (6) - (0.12) 0.8 = 0.096 Page 6 of 11 b) The non-diversifiable and the diversifiable" risks for P. Be 0.6 (0.7) + 0.4(1.2) 0.90 5 - Best slep) 109 = 10 (1.094) 0.1282 -0.0324 + 0.0158 k = 13.53 % Non-di). Diversifiable