1.

Company A has $12717054 in permanent debt outstanding. The firm will pay interest only on this debt. The firm's marginal tax rate is expected to be 44% for the foreseeable future. Suppose that the firm pays interest of 4.73% per year on its debt.

What is the present value of the interest tax shield, assuming its risk is the same as the loan?

NOTE: Submit your answers with 4 decimals after the dot. Do not include the "$" sign

2.

Consider a project with free cash flows in one year of $134133 or $203338, with each outcome being equally likely. The initial investment required for the project is $117113, and the projects cost of capital is 22%. The risk-free interest rate is 10%.

What is the NPV of this project?

NOTE: Submit your answers with 4 decimals after the dot. Do not include the "$" sign

4.

Company A is currently an all-equity firm with an expected return of 10.59%. It is considering borrowing money to buy back some of its existing shares, thus increasing its leverage.

Suppose the company borrows to the point that its debt-equity ratio is 1.22. With this amount of debt, the debt cost of capital is 8.52%. What will be the expected return of equity after this transaction?

NOTE: Submit your answers with 4 decimals after the dot. Do not include the "$" sign

7.

Suppose the corporate tax rate for Company A is 45%. Consider a firm that earns $1204 before interest and taxes each year with no risk. The firms capital expenditures equal its depreciation expenses each year, and it will have no changes to its net working capital. The risk-free interest rate is 5.31%.

Suppose the firm makes interest payments of $639 per year. What is the difference between the total value of the firm with leverage and without leverage?

NOTE: Submit your answers with 4 decimals after the dot. Do not include the "$" sign