1) RATE OF RETURN Stock A 0.30 0.12 0.01 0.06 Stock B 0.45 0.10 0.15 -0.30 Stock C 0.33 0.15 0.05 -0.09 Probability Economy Boom Good 0.30 0.40 0.25 Poor0.05 Bust For your portfolio, if you invested 30% in stock A, 30% in stock B, and 40% in stock C, then what is expected return of the portfolio? A firm has a WACC of 11.5%, cost of equity is 16%, cost of debt is 8.5%, tax rate is 35%. Find debt to equity ratio. 2) A firm is using mixture of debt and equity while formulating its capital structure. For debt, it has 4000 outstanding bonds with par value of $1000 each, and selling for 103% of par. For common stock, the firm has 90,000 outstanding shares with selling price of $57 per share. Additional info: cost of debt 6.72%, beta coefficient 1.10, market risk premium 8%, risk free rate 6%, tax rate 35%. Required: by using market value weights, calculate the firms WACC. 3) 4) XYZ firm is proposing the following scenario regarding its capital structure. The firm, as first stage, has no debt in its capital structure, however, the firm can borrow at cost of debt equal to 8%. If the firms, wACC now is 12% and the corporate tax rate is 35%, then with no debts, what is the firms cost of equity. 2- 1- what will be the firms cost of equity if it uses 25% as debt, and what will be the firms WACC. 3- what will be the firms cost of equity if it uses 50% as debt, and what will be the firms WACC 5) XYZ firm is now all equity firm, where the firm expects to have $225.25 as earnings before interest and taxes, in perpetuity. Currently the firm is going to restructure its capital by borrowing $250 which cost of 8%. If the cost of equity is 18% and the cooperate tax rate is 40% then 1- What would be the value of the firm before restructuring its capital (before borrowing) 2- What would be the value of the firm after restructuring its capital (after borrowing). 3- What would be the value of levered equity? 4 What would be the cost of equity after leverage? 5- What would be the firms WACC