A firm is raising funds by selling a package of equity, debt and preferred stock.

The details of the package are:

1) Equity sold for $30 million. Expected perpetual dividends to buyers is $2.10 million per year.

2) Preferred stock sold for $15 million. Expected perpetual dividends to buyers is $0.8 million per year.

3) Debt sold, perpetual risk-less guaranteed  coupon payments to be $6 million a year and is discounted at a rate of 4.65% per year.

 

10.A stock with a beta of 2.9 has an expected rate of return of 15.6%. The risk-less rate in the market is 4%. What is the market premium market rate of return - risk-less rate Assume CAPM is true.

 

11. Shoop Bank has an average WACC of 0.12 and adjusts for risk by adding or subtracting 0.02 to or from its average WACC.  If Shoop considers a a business loan above average risk, a car loan average risk, and a new ATM machine below average risk, what is Shoop's risk adjusted WACC for a business loan.

 

12. Sarapo Inc's are trading at their par value of $1,000 and pay interest 1 times a year.  If each interest payment is 5 what is Sarapo's component cost of debt.

 

13. If the Present Value of all estimated futures costs of a 4 year new investment project is 210, and the future value of all expected profits is 130, what is the projects MIRR.

 

14. A firm invests in a project that will produce a steady yearly savings of $7,800,000 starting one year from now. The investment needed for the project is $107,000,000.

What is the IRR of the project.

 

15. A firm has 10,000,000 shares outstanding with a price per share of $27.20 previous to Rights Issue. It does a Rights Issue where it offers 2,000,000 shares to existing shareholders at a price of $16.60.

 

16. A firm has 10,000,000 shares outstanding with a price per share of $21.40 previous to a share repurchase. The firm repurchases 2,000,000 shares with a price per share of $27.80.