course is ( PORTFOLIO MANAGEMENT )

1. (A), Suppose given that company's tax rate is 35%, the company has Debt: 8.000 6.5% coupon bonds outstanding, OMR 100 par value, 25 years to maturity at par, selling for 106 percent of par value, what is the company's cost of debt after tax? What would be the cost of debt before tax? (2 Marks) (B). Assume that a company has target capital structure of 60% common stock, 5 percent preferred stock, and 35% debt. Its cost of equity is 12 percent, the cost of preferred stock is 5 percent, and the before tax cost of debt is 7 percent. The relevant tax rate is 35%. What is the company's WACC? (2 Marks) 2. Companies U and L are identical in every respect, except that U is unlevered while L is levered. Company L has OMR 2,000,000 of 8% Debt outstanding. Assume that all the MM assumptions are met, the tax rate is 50%, EBIT is OMR 600,000 and that equity-capitalization rate for company U is 10%. What would be value for each firm according to MM's Approach, Calculate L firm's cost of Equity and Overall cost of capital of L firm? (3 Marks) 3. XYZ expects a net operating income (EBIT) of 20% on total assets of OMR 1,500,000. It has OMR 800,000, 6% debentures. The overall capitalization rate is 10% Calculate the value of firm, value of the equity and equity capitalization rate (cost of equity) according to the net operating income approach. Verify the overall cost of capital (WACC). (2 Marks) 4. (A). In 2011 Milhous Co 12s19 bonds listed as 97, and they pay coupon semiannually. If your required rate of return is 13%, how much should you pay for one of these bonds? Would you buy them at the market price? Assume the face of a Bond is OMR 100. (2 Marks) (B). Albert Company, with current yield 12%, will mature after 10 years. The coupon rate of theses is 10% Calculate their market price and the yield to maturity. (2 Marks) 5. The following data relate to a firm: earnings per share OMR 10, capitalization rate 10%. retention ratio 40%. Determine the price per share under Walter's and Gordon's models if the internal rate of return is 15%. What would be the optimum payout ratio as per Walter's and Gordon's models? (2 Marks)