question 1:

question 2:

The total market value of the common stock of the Okefenokee Real Estate Company is $12.5 million, and the total value of its debt is $7.9 million. The treasurer estimates that the beta of the stock is currently 1.9 and that the expected risk premium on the market is 6%. The Treasury bill rate is 5%. Assume for simplicity that Okefenokee debt is risk-free and the company does not pay tax. a. What is the required return on Okefenokee stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. Estimate the company cost of capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) c. What is the discount rate for an expansion of the company's present business? (Do not round intermediate calculations. Enter your onswer as a percent rounded to 2 decimal places.) d. Suppose the company wants to diversify into the manufacture of rose-colored spectacles. The beta of unleveraged optical manufacturers is 110 . Estimate the required return on Okefenokee's new venture. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Mom and Pop Groceries has just dispatched a year's supply of groceries to the government of the Central Antarctic Republic. Payment of $190,000 will be made one year hence after the shipment arrives by snow train. Unfortunately, there is a good chance of a coup d'tat in which case the new government will not pay. Mom and Pop's controller therefore decides to discount the payment at 30%, rather than at the company's 14% cost of capital. a. Is it proper to use 40% as the discount rate in this situation? No Yes b. How much is the $190,000 payment really worth if the odds of a coup d'tat are 15% ? (Do not round intermediate calculations. Round your answer to 2 decimal places.)