1. A firm currently operates with 20% of its capital financed with debt and the remainder through common equity.

Assume the average yield to maturity of the firm's outstanding bonds is 6.5% and that the firm is taxed at a 20% marginal tax rate.

Assume the risk-free rate is 6% and the market risk premium is 7%.

If the firm has a beta of 1.5, what is the firm's wacc?

2. Assume the firm holds no short-term investments. If the firm's annual FCFs of $100 million are expected to remain constant (g=0%), what is the value of the firm's operations?

3. What is the value (in millions of dollars) of the firm's debt capital? (wd * V,op)

4. If the firm has 10 million common shares oustanding, what is the price per share of common stock?

5. If the firm changed to an all-equity capital structure, what would its beta be?

6. What is the firm's wacc with an all-equity capital structure?

7. If the firm had a 40% debt / 60% equity capital structure, what would its beta be?

Calculate the debt to equity ratio, then use the Hamada equation to calculate levered beta.

8. Assuming the firm's bond yields increase to 7.5%, what is the firm's wacc with a 40% debt / 60% equity capital structure?

9. If the firm had a 60% debt / 40% equity capital structure, what would its beta be?

Calculate the debt to equity ratio, then use the Hamada equation to calculate levered beta.

10. Assuming the firm's bond yields increase to 9%, what is the firm's wacc with a 60% debt / 40% equity capital structure?

11. What is the value of the firm's operations at the optimal capital structure?

12. What is the stock price at the optimal capital structure?