ps8 - FIN300 Introduction to Managerial Finance Spring 2010...

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FIN300 Introduction to Managerial Finance Spring 2010 Professor H. Wang Problem Set #8 Due: NOT DUE – Solutions will be uploaded shortly after Please make sure to write clearly the name of each member in the group. Please turn in your solutions at the beginning of the lecture on the due date. Late submissions or submissions by groups larger than four students will not be accepted. 1. Lizpaz Inc. is a levered firm with a debt-to-equity ratio of 0.25. The beta of the common stock is 1.15, while the beta of the debt is 0.3. The market-risk premium is 10 percent and the risk-free rate is 6 percent. The corporate tax rate is 35 percent. a. What is the firm’s cost of equity capital? b. If a new company project has the same risk as the overall firm, what is the weighted average cost of capital for the project? 2. The UIC Furniture Company has successfully been in business for 25 years and grown to have annual sales of $420 million and annual profits of $37 million.
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ps8 - FIN300 Introduction to Managerial Finance Spring 2010...

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