1. Plutonic Corporation has a debt ratio of 30%, a cost of debt (Rd) of 6.00%, and an equity beta (B) of 1.38. Assuming a corporate tax rate (Rt) of 35%, a risk-free rate (Rf) of 1.5%, and an EMRP of 5.0%, what is Plutonic's Unlevered Cost of Capital (UL)? What is Plutonic's WACC? What is the upside limit of Plutonic's WACC? Please provide a specific figure.
2. The current 2-Year U.S. Treasury Note yields 0.14%. What will the yield on the 2-Year Note be 3 years from now? If the Federal Reserve increases short rates in 25 basis point increments, estimate how many times the Fed will increase interest rates during the next 3 years.
3. Auric Enterprises has an equity beta (B) of 1.17. Assuming an EMRP of 5% and a risk free rate (Rf) of 1.5%, what is Auric's cost of equity (Re)? Auric has a 100% dividend payout ratio and currently pays a dividend of $3.80. After 5 years it intends to reduce its dividend to $3.50 with a payout ratio of 80%. Using the Dividend Discount Model, what is the current value of Auric's stock?
4. Congratulations! You have just won a $20 million Powerball Lottery. You have a choice of payouts. You can either take a $15 million lump-sum today or you can receive an annuity of $1 million for the next 20 years. Assuming a discount rate of 3% which one should you choose? What if the annuity grows at 1% per year? Please show all calculations.
5. Primula Corporation decides to issue a 30-year corporate bond. The bond carries a coupon of 6%, which represents the underlying 30-Year Treasury Note yield of 4% plus a 2% credit spread. If the yield-to-maturity (YTM) of the bond at issuance is also 6%, what is the price of the bond? A year later, the 30-Year Treasury still yields 4%, but the Primula credit spread has widened to 3%. What is the new price of the bond? If you decided to buy $10,000 worth of Primula bonds at a yield of 8%, what is the NPV of that purchase?