Question 2 a. A firm is considering a new project which would be similar in terms of risk to its existing projects. The firm needs a discount rate for evaluation purposes. The firm has enough cash on hand to provide the necessary equity financing for the project. Also, the firm has 1,000,000 common shares outstanding with a current market price of GH11 per share. Next year's dividend is expected to be GH1 per share and the firm estimates dividends will grow at 5% per year for the next several years. The firm also has 150,000 preferred shares outstanding, with a current market price of GH10 per share. Dividend of GH0.9 per share is paid on preferred stock. The firm has a total of GH10,000,000 in debt outstanding. The debt instrument which was initially issued at GH 100 is currently selling at a discount at GH95. The coupon rate of the debt is 10 % and the debt instrument 20 years to mature. The firm's tax rate is 20%. The project requires an initial capital investment of GH500,000. However, the project is expected to generate GH100,000 annually in perpetuity. Required: i. Calculate the WACC for this project? ii. Evaluate the project (10 marks) You own all the equity of Glory Ltd. The company has no debt. The company's annual cash flow is GH900,000 before interest and taxes. The company tax rate is 35%. You have the option to exchange 1/2 of your equity position for 5% bonds with a face value of GH$2,000,000 Required: i. What is the value of the unlevered firm? ii. What is the value of the levered firm? Assuming a bankruptcy cost of GH8000, what is the value of the levered firm after considering bankruptcy cost? (7 marks) in Why do bonds with long maturities fluctuate more in price than do bonds with short maturities, given the same change in yield to maturity? (3 marks) Total: 20 marks Question 3