Mojito Mint Company has a debt-equity ratio of 0.35. The required return on the company's unlevered equity is 12.8 percent, and the pretax cost of firm's debt is 6.5 percent. Sales revenue for the company is expected to remain stable infinitely

57033 Ro=128 % 1. Mojito Mint Company has a debt-equity ratio of 0.35. The required return on the company unlevered equity is 12.8 percent, and the pretex cost of the firm's debt is 6.5.present. Sales revenue for the company is expected to remain stable indefinitely at last year's level of $17.500,000. Variable costs amount to 60 percent of sales. The tax rate is 40 percent, and the company distributes all its earnings as dividends at the end of each year. Required: a) If the company were financed entirely by equity, how much would it be worth What is the required return on the firm's levered equity? Use the weighted average cost of capital method to calculate the value of the company What is the value of the company's equity? What is the value of the company's debt? d) Use the flow to equity method to calculate the value of the company's equity. to 40 h b) c) 2. The ABC Company is considering the purchase of a new machine for $30,000. The machine is expected to save the firm $12,500 per year in operating costs over a 5 year period, and can be depreciated on a straight-line basis to a zero salvage value over its life. Alternatively, the firm can lease the machine for $6,500 per year for 5 years from Tiger Company, with the payment at the beginning of each year. The firm's tax rate is 34%, and its cost of debt is 10% Required: a) Should ABC Company buy or purchase? Why? b) What is the maximum payment of the lessee? 3. ABC company is a large conglomerate thinking of entering the gold business by merging XYZ company, where it plans to finance projects with a debt to value ratio of 25 percent. There is currently one firm in the gold business, XYZ company with 40 percent debt and 60 percent equity. The beta of XYZ's equity is 1.5. ABC's borrowing rate is 6%, while XYZ's borrowing rate 7% The corporate tax rate for both firms is 0.4. The market risk is 12%, and the riskless interest rate is 8%. The current unlevered cash flow from assets for XYZ company is 7.5 million. The cash flows are expected to grow at 8 percent for the next three years before leveling off to 4 percent for the indefinite future. Required: a) What's XYZ's cost of equity capital? b) What's cost of equity capital for all-equity firm in the gold industry? What's WACC for ABC company's gold business? d) What's WACC for XYZ company? XYZ currently has 1 million shares of stock outstanding. What is the maximum price per share ABC should pay for XYZ! ABC uses GM as its lead underwriter. GM charges ABC spreads of 5% on new common stock issues, and 3% on new debt issues. When flotation costs are considered, what is the amount ABC should raise (amount raised) to merge XYZ