***Assumptions for parts A - F listed in the second box below 1 A firm has 2.5 million shares of common stock outstanding, currently selling at $120 per share. 2 it is expected to have EPS and dividends per share at the end of the current year in the amounts of $15 and $6, and a Return on Equity of 10%. 3 It also has $250 Million par value of debt on its books, which is currently selling at a 4% premium to par. The debt is 20-year debt with a 6% annual coupon rate. 4 The firm has a 25% marginal tax rate 5 The firm's beta is 2.0, the current YTM on treasuries is 3%, and the market risk premium is 4% 6 The firm has a size beta of 0.20, a value beta of 0.50 and a liquidity beta of 0.15 -- historical retums on various subsets of firms are as follows: Historical Subset Average return Part Small Firms 14% A What are the weights of debt and equity for the firm? Large Firm B What is the cost of equity based on the Fama French model? Value Firms C What is the cost of equity based on the Pastor-Stambaugh model? Growth D What is the cost of equity based on the Gordon Growth constant growth) model? Very Liquid 9% E What are the before and after-tax costs of debt? illiquid firms 12.50% F What is the WACC for the firm using the Gordon growth model's cost of equity and the weights from question #22? 11% 13% 11% Firms firms