7. Suppose company XYZ is a publicly traded firm. Its current share price is $22.5. The total number of outstanding shares is 20 million. XYZ has 525,000 bonds outstanding, each with a face value of $100, maturing one year from now. The bonds do not pay a coupon and are considered risk-free. XYZ's stock has a market beta of 0.8 . The expected market risk premium is 6%, and the risk-free rate is 5%. a What is the current market value of the firm? b What is the market beta of the firm? c Suppose that the beta of the firm's assets and the expected interest rates are constant over the next two years. What is the expected price of the stock in two years if it does not pay dividends? Assume that the performance of the company in Year 1 does not predict its performance in Year 2. (Hint: the firm pays off its current debt after one year.) d If the firm issues 551,250 2-year zero-coupon bonds with face value $100 to buy back its stock, will it change the equity beta of the firm? If yes, compute the new equity beta. Suppose that investors consider these new bonds risk-free. (Hint: the firm's asset beta is not affected by capital structure)