Pari Inc., an all$-$equity firm, has earnings before interest and taxes of $$950,000$ and an un$-$levered beta of

$\mathrm{.}80.$ The firm has $200,000$ common shares issued and outstanding. In the market, you observe that

Government T$-$bills are being sold to yield $2\%$ and the S&P$/$TSX Composite Index is expected to yield $9\%.$

Assume M&M case I, with no taxes and no cost for the risk of default. All general M&M assumptions

apply.

a$)$ What is the market value of the firm? $(2$ marks$)$

b$)$ What is the WACC for the firm. $(1$ mark$)$

c$)$ What is the market value of a share in the company and what is the EPS? $(2$ marks$)$

d$)$ What is the market value of the firm and the market value of the equity if they issue $$5,000,000$ in

debt with a coupon rate of $4\mathrm{.}5\%$ and use the proceeds to repurchase shares? $(2$ marks$)$

e$)$ What is the new cost of equity? $(2$ marks$)$

f$)$ According to CAPM, what is the new beta? $(2$ marks$)$

g$)$ What is the WACC? $(2$ marks$)$

h$)$ Explain what happens to the market value of the firm and the WACC if the firm increases its debt$-$to$-$

equity ratio. $(1$ mark$)$