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3. (20 points) You have the following information for the company Exxon. The "beta coefficient for Exxon is .85 based on the past information. The 3-year average of 30-day T-bill rate is 2%, the average market return of (say, S&P 500 index) in the same period is 16%. Answer the following questions: a) What is the required return for Exxon? Why do we call it "required return? b) Suppose that Exxon's current dividend is $.60 per share with possible expected growth rate as 4% per year from now on, what is your assessment f$or the value of Exxon's stock? c) Suppose the current market price for the Exxon's stock is $9 per share. Let the capital market be efficient as ideally assumed. That is, the current stock price is equal to the stock fair value. What is the required return for this stock now if the information in (b) still applies? What is the beta associated with this stock now? d) Exxon has the following capital structure: the firm issued 6 million shares of common stock with the stock price in c), the firm also issued 1.5 million shares of preferred stock with $4.5 preferred dividend per share, currently, Exxon has $25 millions in debts with interest rate as 6.5%. Suppose the current preferred stock price is $6 per share and the current common stock price is as in question (c), and the corporate tax rate is 25%. What is the (after-tax) weighted average cost of capital for Exxon? e) Why is Exxon able to undertake so much in debts? Is this related with the industry or business risk? f) Will this firm undertake high operating leverage? Why or why not