1)

Consider a company with different EBIT for different states of the world: Bad = $15,000; Average = $20,000; and Good = $25,000. The company has 1000 shares outstanding, and each share is valued at $300. The company is considering changing its capital structure to 50% debt which it can secure at 6%. What are the EPS for the company under each state of the world and under each capital structure (there are 6 total EPS)?

2

Lightyear, Inc. has 60,000 semi-annual bonds outstanding that are selling at par ($1,000 a bond). The bonds have a coupon of 6.0%. The company has 2.5 million shares of common stock outstanding. The common stock has a beta of 1.4 and sells for $62 a share. The U.S. Treasury bill (a proxy for the risk free rate) is yielding 0.8% and the return on the market is 10.0%. The corporate tax rate is 20%. What is the firm's weighted average cost of capital?

(You need to calculate the cost of debt, and equity, and the weights of each. Then you can calculate the WACC.)

Show each step please