1. The Habitat Corporation has a WACC of 16 percent. Its cost of debt is 13 percent. If Habitats debtequity ratio is 2, calculate the its cost of equity capital, by ignoring taxes in your answer.

(3 marks)

2. (i) Gypco expects an EBIT of RM10,000 every year forever. The firm borrowing rate is at 7 percent. Suppose Gypco currently has no debt, and its cost of equity is 17 percent. If the corporate tax rate is 35 percent, calculate the value of the firm.

(3 marks)

2. Calculate the value of Gypco if it borrows RM15,000 and uses the proceeds to repurchase stock.

(3 marks)

3. Kathy wish to list her company in the share market to raise additional fund and expand her business further. Advise her regarding underwriters and the types of underwriting available in the market.

(16 marks)