1) What is the after-tax discount rate appropriate discounting the cash flows of AO Corp? Demonstrate your answer with calculations(excel)

2) Describe the circumstances under which it would be appropriate for AO Corp to use the discount rate you have calculated in question 1 for project evaluation. When would it be inappropriate to use this ducoynt rate? Discuss

3)

D AO Corp is an American sporting goods company manufacturing tennis rackets and sporting apparel. The following financial information is extracted from AO Corp: Source of Capital Market Value Debentures $221 mil Preferred Stock $146 mil Common Stock $433 mil AO Corp's preferred stock is currently trading at $61.21 each and pays a fixed dividend yield of 4.15% p.a. compounded annually on a par value of $100. The current market price of AO Corp's common stock is $53.19 per share. The firm just paid a $3.74 dividend today on its common stock and these annual dividends are expected to grow at 2.8% p.a.compounded monthly into the indefinite future. The return debtholders require for lending money to AO Corp is a risk premium of 260 basis points over the current risk-free rate. The tax rate that is applicable to AO Corp is 21% and the 10-year US Treasury bond rate is 1.9% pa. compounded semi-annually. On 24 January 2022 ABC Ltd announced that its EPs for the year ended 31 December 2021 was $0.45. This was 40% lower than the previous year. On the day of the announcement the share price of ABC increased resulting in a postive abnormal return for shareholders on that day of 8.45%. No other abnormal returns were generated around that date and the overall market was down slightly on the day of the announcement. What does this outcome imply? Is this result consistent with market efficiency? Discuss