Part 2.A What is the expected rate of return for a portfolio that is comprised of $90,000 invested in stock S and $60,000 in stock T? State of Economy Boom Normal Recession Probability of Returns if State Occurs State of Economy Stock S Stock T 5% 11% 5% 85% 8% 6% 10% -5% 8% Part 2.B You have a $15,000 portfolio which is invested in stocks A and B plus a risk-free asset. $3,000 is invested in stock A. Stock A has a beta of 1.7 and stock B has a beta of 1.3. Approximately how much (in dollar terms) needs to be invested in stock B if you want your portfolio's beta to equal that of the overall market? Part 3.A GT Industries has 6.5 million shares of common stock outstanding with a market price of $14 per share. The company also has outstanding preferred stock with a market value of $10 million, and 25,000 corporate bonds outstanding each with face value $1,000 and selling at 90% of face value on the bond market. The cost of equity is 14%, the cost of preferred is 10%, and the pre-tax cost of debt is 7.25%. GT's marginal corporate tax rate is 30%. What are the respective market- value weights for GT's common stock, preferred stock, and corporate bonds? What is the firm's WACC? Part 3.B XYZ has an expected perpetual EBIT = $4,000. The firm is currently unlevered with 20,000 shares of outstanding, and its cost of equity is 15%. The firm is considering to restructure its funding sources by borrowing $10,000 perpetual debt and buying back some of its shares. The cost of debt is 10% and the firm will pay interest annually. The company's marginal corporate tax rate is 34%. a. What is the value of XYZ before the restructuring? b. What will be XYZ's value after the restructuring? C. What is the cost of equity after the restructuring?