1. Bangalore Bread is an Indian producer of breads and other baked goods. Over the last year, profitability has been strong, and the share price has risen from 15 rupees per share to 25 rupees per share. Financial analysts (who generate projections in rupees) expect the profit growth to continue. The company has 20 million shares outstanding. The company's borrowing is conservative; the company has only 100 million rupees in debt. The debt trades at a yield-to-maturity 50 basis points above Indian risk-free bonds. Bangalore Bread has a market beta of 0.7. If the Indian risk-free rate is 7 percent, the market risk premium is 5 percent, and the marginal tax rate is 30 percent, what is Bangalore Bread's cost of capital? (Assume that the current capital structure is the target capital structure going forward.) 2. Bangalore Bread is now considering a leveraged recapitalization of the company. Upon announcement, management expects the share price to rise by 10 percent. If the company raises 200 million rupees in new debt to repurchase shares, how many shares can the company repurchase? Assuming management will actively manage to the new capital structure, estimate its new market beta. If the interest rate on the company's debt rises to 100 basis points above the Indian risk-free rate, what will the company's new cost of capital equal? (Assume a debt beta of zero and that the beta of the tax shields will equal the beta of the unlevered firm. In other words, ?D = 0, and ?Tax shield = ?U.) How high would the company's interest rate have to rise in order for the cost of capital to be the same as in Question 1?

3. Your company, EuropeCo (a German conglomerate of food, beverages, and consumer products), has announced its intention to purchase Bangalore Bread. EuropeCo has the same target capital structure as that of Bangalore Bread in Question 2. If the German risk-free rate is 5 percent and the beta of EuropeCo is 0.9, what is the cost of capital for Bangalore Bread under EuropeCo control? 4. Suppose that the median price-to-earnings ratio for the S&P 500 is 15.0. If the long-run return on equity is 13.5 percent and the long-run growth in GDP is expected to be 6.7 percent (3.5 percent real growth and 3.2 percent inflation), what is the cost of equity implied by the equity- denominated key value driver formula?

5. Market betas are typically computed with five years of monthly data or two years of weekly data. For computational simplicity, we present only 12 data points in Exhibit 15.12 for ConglomCo, a large conglomerate firm. Using a spreadsheet regression package or other software tool, compute a regression beta for ConglomCo. percent per year, with annual coupons. The bond is currently trading at $80. What is the yield to maturity on the bond? If the probability of default is 35 percent, what is the cost of debt? Assume that upon default, only 50 percent of face value will be recovered and that remaining coupons will not be paid. If the probability of default rises to 40 percent but the expected payout in default remains at 50 percent, what do you think will happen to the yield to maturity and the cost of debt? Why? 7. What challenges did the financial crisis of 2007-2008 and its aftermath pose for estimating a firm's cost of capital? How should one handle these challenges?

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Math 251 Calculus 1 Focus Problem Set 3 Name: Hopewapa Due Date: Sunday, Oct 18, 2020 on Moodle (No late work will be accepted.) FOCUS PROBLEMS: Your goal for the focus problem should be to clearly demonstrate your understanding of the concepts and/or skills we have been studying in class. Assessment of your work will be based on completeness, correctness, and presentation. Please refer to the Focus Problem Guidelines for details on the presentation of your work. The focus problem solutions are worth 12 points. 1) (6 pts) Consider the piecewise linear function y g(x) that is provided below. Assume that each portion of the graph of g is a straight line, as pictured. a) State all values of a for which lim g(x) & does not exist. 4 3 b) State all values of a for which g is not continuous at x-a. 24 1+ 4-3-2 1 1 2 4 c) State all values of a for which g is not differentiable at x-a. -1- -2 -3 -4 d) Sketch an accurate graph of y = g'(x). 2) (6 pts) A potato is placed in an oven, and the potato's temperature F (in degrees Fahrenheit) at various points in time is taken and recorded in the following table. Timer is measured in minutes. a) Use a central difference to estimate F'(45). Use this estimate as needed in subsequent questions. t F(t) 0 70 15 180.5 b) Find the local linearization (tangent line approximation) y=i =L(1) 30 251 to the function y=F(t) at the point where t=45. 45 296 60 324.5 75 342.8 c) Use the local linearization to determine an estimate for F(47). 90 354.5 d) Do you think your estimate in (c) is too large or too small? Why? (Hint, think about concavity.)