A firm has no debt in its current capital structure. Without debt its beta is 1.10. Its current tax rate is 40%.

Management is considering moving to a new capital structure. The new debt level would be 30% debt and the equity level therefore would be 70%. If the risk-free rate is 5.0% and the market risk premium is 6.0%, then what would be the firm's new cost of equity?

(Show calculations and show two decimals in your percentage. HINT: start by calculating the new beta for this capital structure.)

2.

Your company is considering the following independent, average-risk investment projects:

Project	Size of Project	Project IRR
Project V	$600,000	12.0%
Project W	$400,000	11.5
Project X	$300,000	11.0
Project Y	$200,000	10.5
Project Z	$100,000	10.0

The company has a target capital structure that consists of 60 percent debt and 40 percent equity. Its net income estimated to be $550,000. Its WACC is 11.2%.

Question:

Using the residual dividend model: what is the company's dividend pay out ratio? Show your calculations to get credit.

3. Dixie Tours Inc. buys on terms of 2/10, net 32 days. Its nominal annual cost of its non-free trade credit is _________% (Assume a 365-day year. Show 1 decimal. E.g. 99.9)

4.