Question No 2 08 Marks Answer the following.

i. Differentiate between business risk and financial risk. ii. What is Operating Leverage? Describe its implications with examples. iii. Explain with examples the factors which affect business risk. iv. You have a capital structure consisting of 30% debt and 70% equity. There is an 8% yield to maturity. The risk-free rate is 5%, and the market risk premium is 6%. Using the CAPM, the cost of equity is currently 12.5%. There is 40% tax rate. (03)

a. Calculate current WACC? b. Calculate the current beta on common stock? c. Calculate the beta ifyou had no debt in the capital structure, that is unlevered beta?