Part 4 1. Answer the following two questions: a. Should you use one cutoff rate for all projects or adjust the discount rate based on the beta of the project? b. Do you reject projects above or below the SML line? 2. If a firm's leverage increases, what happens to the firm's beta? 3. Assume the following information: A firm's capital structure is currently all equity with an unlevered beta of 0.73. Taxes = 25%. Beta of debt = 0. a. Scenario 1: Now the capital structure changes from 100% equity to 70% equity and 30% debt. What is the new equity beta? b. Scenario 2: Now the capital structure changes from 100% equity to 40% equity and 60% debt. The new tax rate = 15%. What is the new equity beta? 4. Assume the following scenario of firm XYZ: market value of stock = $14 million, total value of debt = $9 million, Equity beta = 1.9, risk-free rate = 5.32%, expected market return =12.7%, taxes = 0%, cost of debt = 11.57%. a. Based on the above information, what is the expected risk premium? b. What is the Expected return on equity? What is the Weighted Average Cost of Capital? C