Assume an M&M world with no corporate or personal taxes. Market conditions are such that" = 5%, [#] = 15%. XYZ Corp. is currently all-equity financed and has a value of $100,000,000. XYZ currently gives a return on equity of 18%. Determine the value of XYZ s equity beta $.

b) Refer to the problem in a). XYZ changes its capital structure such that its debt-to- equity ratio is now 0.6. The return on XYZ s debt is 5%. Calculate:

i) r$ (i.e. the return on equity)

ii) $ (i.e. the beta on equity)

iii) r%&'' (i.e. the weighted average cost of capital)

iv) ( (i.e. the before tax debt)

v) The total value of XYZ.

vi) The value of XYZ s equity.