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Spear-It Inc., has the following financing outstanding: Debt: 300,000 bonds with a coupon rate of 4.0% and a current price of 120% of par. The

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Spear-It Inc., has the following financing outstanding: Debt: 300,000 bonds with a coupon rate of 4.0% and a current price of 120% of par. The bonds have 20 years to maturity and a par value of $1,000. The bond has semiannual compounding Equity: 2.7 million shares of common stock with a current price of $130 per share and the beta of the stock is 1.19. Market: The corporate tax rate is 21%, the expected market return is 9.5%, and the risk-free rate is 0.02%. Spear-It is considering purchasing Broke N Bored Grill, a privately held restaurant. Broke N Bored currently has debt outstanding with a market value of $15 million. The EBIT for Broke N Bored next year is projected to be $13 million. EBIT is expected to grow at 9% per year for the next five years before slowing to 2% in perpetuity. Change in Net Working Capital, Capital Spending, and Depreciation as a percentage of EBIT are expected to be 5%, 4%, and 6%, respectively. Broke N Bored has 12,5 million shares outstanding and the tax rate is 21%. 1. What is the after-tax cost of debt for Spear-It Inc? (5 points) 2. What is the cost of equity for Spear-it Inc? (2.5 points) 3. What is the weight of debt and weight of common stock for Spear-It Inc? (5 points) 4. What discount rate should Spear-It use to evaluate the potential purchase of Broke N Bored? (2.5 points) 5. What are the Cash Flows for Broke N Bored expected to be in Years 1 - 5 (i.e., what is CF(A) for Years 1 - 5)? [10 points) 6. What is the terminal value of Broke N Bored's cash flows? (10 points) 7. What is the total value of Broke N Bored Grill worth to Spear-It today? (5 points) 8. What is the value of Broke N Bored equity? (2.5 points) 9. What is the maximum price per share Spear-It should be willing to pay for Broke N Bored? (2.5 points)

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