Paper company, Paper King Inc. produces old fashioned notebooks. The company has long-term debt financed by a 10 -year bond with the face value of $100,000 at the coupon rate of 7.5% and the required rate of return is 10.55%. Paper King Inc. also has 10,000 common equity which currently trading at $20 each. The risk-free rate is 4.5% whereas the market risk premium is 7%. The equity beta is 1.5 , the beta of debt is 0.1 . a) What is the price of the bond? ( 5 points) b) What is the required return on equity? ( 5 points) c) What is the firm value and its capital structure? ( 5 points) d) What is the weighted average cost of capital, given that the corporate tax rate is 30% ? (5 points) Paper King Inc. considers a new project. After a marketing campaign which costs $20,000, the firm decides to produce notebooks with chalk overlay paper. This project requires investment in chalk overlay paper machine that costs $450,000. The machine is supposed to be straight line depreciation over the life of the project ( 3 years) to zero salvage value. Paper King Inc. expects however to sell the paper chalk machine at the end of the 3 rd year for 10% of its initial value. Paper King forecasts revenues in the first year of 400,000 and the revenues increase by 10% every year. The operating costs constitute 62.5% of revenues. The project requires an investment in working capital in year 0 of $80,000 and it is going to increase in year 1 and 2 at the same rate as revenues do. The working capital is fully recovered at the end of the 3 rd year. e) Compute the NPV of the project (10 points) f) What is the payback period? ( 5 points) g) Verify whether 5.20% is the internal rate of return on this project and show your calculations. (5 points)