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100038050_HW12 - Problem 11 Rs = 0.15 Market value for...

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Problem 11 Rs = 0.15 Market value for equity = $5,130,000.00 Market value for debt = $4,120,000.00 YTM of bonds => 1030 = 1000*0.07/2(PVIFAR%,40) + $1,000(PVIFR%,40) 1030.56 We get this value for a rate equal to 3.36% YTM = 6.72% 10.15% Problem 12 Rs = 0.17 Market value for equity = $306,000,000.00 Market value for bonds = $111,600,000.00 YTM of bonds => 930 = 1000*0.085/2(PVIFAR%,30) + $1,000(PVIFR%,30) 929.9 We get this value for a rate equal to 4.69% YTM = 0.09 14.09% a) The market value weights of the company's financing: Equity/Value = 0.73 Debt/Value = 0.27 Problem 13 a) Projects with expected return higher than 12% should be accepted, that is X, Y, and Z and projects w than 12%, that is project W should be rejected. b) If the return calculated using the CAPM is higher than the project expected return, we should accept if not, we reject the project. W 0.09 < 0.11 accept X 0.11 < 0.13 accept Y 0.13 < 0.14 accept Z 0.17 > 0.16 reject c) Project W would be incorrectly rejected; Project Z would be incorrectly accepted. Problem 14 11.26% Since the project is riskier than the company, we need to adjust the project discount rate for the additional risk.
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