QUESTION I: Suppose the standard deviation is 30%, current stock price is K100, exercise price is K100, risk free rate is 5%, dividend yield is 3% and time to maturity is 12. Calculate the value of the call option using the Black-Scholes model. Hint: calculate the d, to two decimal points before using the normal distribution table. The value for N(D2) is 0.47652. (30 Marks) QUESTION 2: (a) Assume EBIT = KIO,000; debt is K10, 000, with an assigned coupon rate of 8%; the cost of common stock or required rate of return is 10%. Calculate the value of this firm, whose tax rate is 40%. (10 marks) (b) Using the MM's proposition I, estimate the cost of issuing equity when the cost of debt is 8% and the cost of unlevered firm is 14%. The firm has a debt equal to K100,000 and K200,000 worth of equity (assume no taxes). (10 marks)