1.

Your company has issued debt with a market value of $4.2 million, preferred shares with a market value of $5.4 million and equity with a market value of $34 million. Expected returns on these financings are, respectively, 8%, 6% and 12%. The company's income tax rate is 30%. What is the company's weighted average cost of capital?

2.Your boss at the private equity company wants to value a takeover target. To value it, he asksyou to determine FCFF using the following income statement for the firm. You also estimate that ongoing annual investment in current assets is $5 million per year and annual expenditures on capital investments are estimated at $10 million per year.

3.Your private equity firm has identified a turnaround opportunity. It is projected to generate FCFF to the firm of $12 million at the end of year 1, $42 million at the end of year 2, and $50 million at the end of year 3, after which FCFF is expected to grow at 4% per year forever after. What is the value of the firm if the appropriate discount rate is 11% per year?