24) The common stock and debt of Fleming Corp. are valued at $50 million and $30 million, respectively. Investors currently require a 20 percent return on the common stock and an 8 percent return on the debt. If Fleming Corp. borrows $20 million of debt and uses this money to return common stock, what happens to the expected return of the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. a. Expected return =25.2% b. Expected return =18.5% c. Expected return =21.4% d. Expected return =28.0% 25) (Continuation) In the previous scenario, how much is it going to be the new cost of capital if the tax rate was 25 percent? a. Expected return = 14.25% b. Expected return = 18.32% c. Expected return = 12.53% d. Expected return = 11.45% 26) Humphreys Removers is an all equity financed firm, with 1000 outstanding stocks and market value per share =$12. Determine the spread of expected return per share between the optimistic scenario (earnings =$3,000 ) and the pessimistic scenario (earnings =$1,200 ). a. Spread =25% b. Spread =15% c. Spread =20% d. Spread =10% 27) (Continuation) Do the same computation but now assuming that the firm is financed 60 percent with debt, at a cost of 10 percent per year. a. Spread =25.3% b. Spread =14.9% c. Spread =37.5% d. Spread =42.6% 28) (Continuation) Determine the value of the stock in the most optimistic scenario assuming 60 percent debt financing. a. $12.0/0.100=$100 b. $5.7/0.475=$12 c. $9.0/0.300=$30 d. $8.0/0.533=$15