1. Yellow Corporation stock currently sells for $80 per share. There are 4 million shares currently outstanding. The company announces plans to raise $2 million by offering shares to the public at a price of $80 per share.

a. If the underwriting spread is 5 %, how many shares will the company need to issue in order to be left with net proceeds of $2 million?

Enter your answer as a whole number not in millions.( For example, 1,000,000 not 1 million.)

Shares = Correct response: 26,31610

b. If other administrative costs are $50,000, what is the dollar value of the total direct costs of the issue? Assume that 26,316 shares are issued. Enter your answer as a whole number.

Direct costs =

2. The Clifford Corporation has announced a rights offer to raise $9 million. The stock currently sells for $23 per share and there are 7 million shares outstanding.

a. If the subscription price is set at $9 per share, how many shares must be sold?

Enter your answer below.

Correct response: 1,000,000

b. Given that 1,000,000 new shares will be sold, how many rights will it take to buy one share?

Enter your answer below.

3. The common stock and debt of Android Corp. are valued at $80 million and $31 million, respectively. Investors currently require a 16% return on the common stock and a 9% return on the debt. There are no taxes.

a. Calculate the weighted average cost of capital. Enter your answer as a percentage rounded to two decimal places. Do not include the percentage sign in your answers.

Enter your response below.

Correct response: 14.050.02

b. If Android Corp. issues an additional $14 million of debt and uses this money to retire common stock, what will be the expected return on the stock? Recall thatthe WACC under the inital capital structure is 14.05. Assume that the change in capital structure does not affect the risk of the debt.Enter your answer as a percentage rounded to two decimal places. Do not include the percentage sign in your answer.

Enter your response below.

4. The common stock and debt of Windows Phone Corp. are valued at $45 million and $36 million, respectively. Investors currently require a 15% return on the common stock and an 6% return on the debt. There are no taxes.

a. Calculate the weighted average cost of capital. Enter your answer as a percentage. Do not include the percentage sign in your answers. Enter your answer rounded to 2 DECIMAL PLACES.

WACC= Correct response: 110.02

b. If Windows Phone Corp. issues an additional $8 million of debt and uses this money to retire common stock, what will be the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt, and recall that the WACC under the initial capital structure is 11%. Enter your answer as a percentage. Do not include the percentage sign in your answer. Enter your answer rounded to 2 DECIMAL PLACES.

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