Jarvis NV is an all-equity firm involved in property and casualty insurance. However, Jarvis is about to issue a 10-year bond at par with coupon of 8%. Prior to the bond issue, the firm has a beta of 0.8 but the firm recognizes that this will change once the firm moves to its new target debt-equity ratio of 0.25. The expected return on the FTSE 500 is 13% and treasury bills currently vield 3.4%. Required: (a) What will be Jarvis's cost of debt and cost of equity once the bond is issued? (8 marks) (b) What will be Jarvis's weighted average cost of capital (WACC) once the bond is issued? [6 marks) (10) Tony plc and Peter plc operate in pet food industry and are identical in every aspect except their capital structures. Tony plc does not have any debt and its 7 million outstanding shares are trading at 28 per share. Peter plc, however, has a combination of debt and equity in its capital structure. Peter has a perpetual bond with a face value of 100 each and book value of 10 million. It costs 6 per cent every year. Each bond is currently trading at 150. Peter has 5 million outstanding shares trading at 35 per share. Both firms do not pay tax and expect to earn 75 million before interest annually until perpetuity. Both firms distribute all their earnings as dividends. Given the above information, determine: (a) What is the value of Tony plc? [2 marks) (b) What is the value of Peter plc? 15 marks) (c) Is Tony ple's equity a better buy than Peter's equity? Explain. (4 marks] CH) Assume that there are no taxes, no transaction costs, and no costs of financial distress. Required: (a) Explain if moderate borrowing increases the required rate of a firm's equity. (4 marks (b) Explain if increases in debt increase the riskiness of the firm. (4 marks)