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 1- Under the first scenario, WACC is * 11.03% 9.80% 9% O O O O 5% None of the above 2- Under the first scenario, price per share is * $32.55/share $29.33/share $25.63/share $2.7/share None of the above 3- Under the second scenario, the approximate cost of equity is 9.80% 9% 11.03% 5% 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. O 72.48% 0 27.52% O 63.49% 36.51% O None of the above