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Please these can't be posted alone, it's one problem and the questions are related! Problem One MMM Co. has unleveraged beta 1.2, risk free rate

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribedPlease these can't be posted alone, it's one problem and the questions are related!

Problem One MMM Co. has unleveraged beta 1.2, risk free rate 5%, and market risk premium for 4%. It works in the 40% tax bracket. The company is intending to build a new plant, and is studying the scenarios to finance it; The first scenario (1) is to finance the plant totally from equity, without any debt, and then the expected earnings per share will be to $2.7/share. The second scenario(2) is to finance the plant from a combination of debt and equity, where it is intending to borrow 30% of the budget with an interest rate of 9% before tax, then the expected earnings per share will increase to $3.2/share. Required: Use the given above to answer questions 1 through 8 2- Under the first scenario, price per share is * $32.55/share $29.33/share $25.63/share $2.7/share O None of the above 3- Under the second scenario, the approximate cost of equity is * O 9.80% O 9% 11.03% O 5% O O None of the above 4- Under the second scenario, the approximate WACC is * 9.34% 11.03% 5% 9% None of the above 5- Under the second scenario, the approximate price per share is * $35.55/share $33.01/share $25.63/share $19.18/share None of the above 6- If the company used a debt for 50% with 9% YTM (before tax cost of debt), then the WACC compared to WACC with no debt will: * Increase 1.22% Decrease 0.86% Increase 0.95% Decrease 0.76% None of the above 7- If the company has a target WACC of 9%, knowing that it can issue bonds at rate of 8% and maintain Beta leverage 1.35, how much approximately it should use equity as portion of it's total capital to meet it's target? * 100% 75% 50% 25% None of the above 8- Assume the company needs to maintain a price per share $30 with EPS 12% from the price and a cost of capital no more than 8%, knowing that the company can borrow at any level of debt at an interest rate before tax 9.5%. Then how much should be the approximate level of debt for the company to reach its target. 72.48% 27.52% 63.49% 36.51% None of the above

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