1. Company JJ gives you the following information for its operation. The expected net income is $28 million next year. Suppose there is 20% income tax imposed on the company. There are 5 million shares of common stocks outstanding. Let the current market price for the stock be $51 per share. Suppose that there is no expansion plan for the company to either spend on working capital vs. long-term investment or to apply the accumulated retained earnings. Answer the following questions:

a. Suppose that Company JJ wants to issue some 15-year coupon bonds issued. The bond carries 6% coupon with $1,000 par value, paid semiannually. Let the current bond price be $860 per bond, what is the yield to maturity for this bond? What are the assumptions you make here? Is there any limitation for this model?

b. Let Company JJs total debts on coupon bond be $15 million in market value with the coupon rate given in a). How much will be the value of stockholders equities under Modigliani and Millers Proposition 2?

c. What is the cost of equity for Company JJ, if theres no preferred stock issued for this company?

d. What is the "beta" of the firm's stock after debt if the risk-free rate is 2% and the market index rate of return is 15%? What is the weighted average cost of capital after debt? Show your work!

e. What is the emphasis of the M&M Proposition 1?