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Question: 1%u3002What is the expected return on the market portfolio at a time when the risk free rate (e.g., T-Bill rate) is 4% and a stock with a beta of 1.5 is expected to yield 16%? What%u2019s the risk premium for this stock? 2%u3002SFE Inc. has 1 million shares of common stock outstanding at a book value of $40 per share. The stock trades for $50 per share. It also has $10 million in face value of debt (corporate bonds of 5 years with coupon rate 10.5%) that trades at 110% of face value. The company%u2019s equity beta is 1.2. The risk-free rate is 4% and the market risk premium is 8%. The corporate tax rate for SFE is 35%. a) What is its ratio of debt to total firm value? b) What is the after-tax cost of debt? c) What%u2019s the cost of equity? d) What%u2019s the after-tax WACC?

1%u3002What is the expected return on the market portfolio at a time when the risk free rate (e.g., T-Bill rate) is 4% and a stock with a beta of 1.5 is expected to yield 16%? What%u2019s the risk premium for this stock?

2%u3002SFE Inc. has 1 million shares of common stock outstanding at a book value of $40 per share. The stock trades for $50 per share. It also has $10 million in face value of debt (corporate bonds of 5 years with coupon rate 10.5%) that trades at 110% of face value. The company%u2019s equity beta is 1.2.The risk-free rate is 4% and the market risk premium is 8%. The corporate tax rate for SFE is 35%.

a)What is its ratio of debt to total firm value?

b)What is the after-tax cost of debt?

c)What%u2019s the cost of equity?

d)What%u2019s the after-tax WACC?