1)XYZ Inc. has 13.2 million shares of common stock outstanding. The firm also has 850,000 shares of 4.45 percent preferred stock and 280,000 semi-annual bonds of $1,000 face value with a coupon rate of 6.95% outstanding. The bonds were issued three years ago with a maturity of 30 years. The common stock has a market price of $35 and its beta is 1.2, the preferred stock is selling for $102 per share, and the bonds are selling for 114% of par. The market risk premium is 5.6% and T-bills yield 2.9%. The firm pays taxes at 22 percent. What is the WACC for the firm?

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2)XYZ Inc. has a project with an accounting break-even quantity of 28,700 units, a life of 4 years. The fixed production costs are $178,000 and variable costs are $18.40 per unit. The project needs an investment of $500,000 in equipment which will be depreciated straight-line to zero over the life of the project. The equipment will be worthless in 4 years. No working capital investment will be required for the project. If the required return is 14 percent, and there are no taxes, what is the financial break-even quantity?

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3)XYZ Inc.'s 6 percent annual bonds sold one year ago for $900. The bonds mature 19 years from now. If these bonds are sold today, the required return on the bonds is 7.4 percent. The inflation rate over the past year was 3.1 percent. What was the real return on this investment?

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4)XYZ Inc. has an issue of zero-coupon bond outstanding with a $1,800,000 face value that matures in one year. The market value of XYZ's assets is $2,050,000 and the standard deviation of returns on assets is 46 %. The risk-free rate is 2.9% compounded continuously. What is the market value of XYZ's debt?

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5)XYZ Inc. has stock is selling for $62 per share. A call and a put option, both with an exercise price of $66 trade on XYZ's stock. The options expire in three months. The risk-free rate of interest is 2.8% per year, compounded continuously and the volatility of the underlying assets is 29%. What is the price of a put option with the exercise price of $66 and expiration date in 3 months?

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