1.

Premium for Financial Risk

Ethier Enterprise has an unlevered beta of 1. Ethier is financed with 40% debt and has a levered beta of 1.2. If the risk free rate is 4.5% and the market risk premium is 4%, how much is the additional premium that Ethier's shareholders require to be compensated for financial risk? Round your answer to two decimal places.

%

2.

Stock Price After Recapitalization

Lee Manufacturing's value of operations is equal to $900 million after a recapitalization. (The firm had no debt before the recap). Lee raised $300 million in new debt and used this to buy back stock. Lee had no short-term investments before or after the recap. After the recap, wd = 1/3. The firm had 22 million shares before the recap. What is P (the stock price after the recap)? Round your answer to the nearest cent.

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