Question #1: DTs shares are currently trading at $30 per share. There are 5 million shares outstanding and the equity beta is 1.2. DT has two outstanding debts. The first debt has par value of $10 million, coupon rate of 6% (payable semi-annually), maturity of 10 years and YTM of 5%. The second debt has par value of $15 million, coupon rate of 7% (payable semi-annually), maturity of 20 years, and is priced at 110% of par. The risk-free rate is 2.5% and the market risk premium is 6.5%. The tax rate of DT is 35%. [Keep at least 2 decimal places for dollar amounts and 4 decimal places for rates]

1. Calculate DTs cost of equity.
2. Calculate DTs after-tax cost of debt.
3. Calculate DTs WACC.
4. Re-calculate the WACC of DT if DT changes to 70% debt-financed, its cost of debt is 7%, and its tax rate is 40%

Question#2: BNP Inc. is an all-equity firm with 12,000 shares outstanding. The current stock price is $40 per share. The company is planning to issue a perpetual debt to buy back its stocks. It can either borrow $120,000 at 4% or $180,000 at 6%. The current EBIT is $120,000 and the tax rate is 30%. [Keep at least 2 decimal places for dollar amounts and 4 decimal places for rates]

1. Calculate the current cost of capital.
2. Calculate the debt equity ratios after the two recapitalization plans.
3. Calculate the cost of equity after the two recapitalization plans.
4. Calculate the stock prices after the two recapitalization plans.
5. Calculate the breakeven EBIT between the two proposed recapitalization plans

Question#3: NDA Inc. is considering a project which requires the purchase of a $160,000 machine. The CCA rate is 30%. When the project ends at year 7, its residual value is expected to be $18,000. This machine is the only asset in the asset class which terminates when the project ends. The project is expected to generate before tax cash flow of $38,000 per year for 7 years. If the project is all financed by equity, the cost of capital would be 12%. The corporate tax rate is 35%. NDA only has $70,000 available and DT bank is willing to provide a loan for the balance at a subsidized rate of 3% which is 2% lower than borrowing cost of NDA. However, the bank will charge 5% of the amount borrowed as flotation costs and require NDA to repay one third of the loan at the end of years 2, 4, and 7. Using the adjusted present value method, determine whether NDA should undertake the project. [Keep at least 2 decimal places for dollar amounts and 4 decimal places for rates]