1. MaybeGood Inc (MG) is a specialized entity that is raising $100MM in equity capital (representing 100% ownership of the firm). The firm's management is telling potential investors that it hopes to grow the $100MM into $150MM in 2.2 years. At this time (2.2 years from now), MG will pay its owners the amount the $100MM has grown to (hopefully $150MM) and close down the entity.

What is MG's cost of equity capital, r_E?

2.

Consider this table for firm YY:

Weight of Equity (E/(D+E)) 0% 40% 60% 90%

r_WACC 12% 11% 13% 19%

What is the firm's Optimal Weight of Debt? Choose one answer and provide one reason.

Because this maximizes the PV of the firm's future Free Cash Flows

-90%

-60%

-Because this minimizes the PV of the firm's future Free Cash Flows

-Because this produces the highest EV/PE ratio.

-40%

-Because maximum WACC coincides with the firm's maximum growth potential