1.Sunlight Batteries has a 40% debt. Its required return on assets (WACC) is 12% and cost of debt is 8%. What is the company's cost of equity capital? If we increase debt to 55% what will be the new cost of equity. What will be weight of equity in sunlight if cost of equity is 20%. Assume we live in a world, where there's no tax. Explain MM proposition 2 (no tax; case 1). (6)

2.A firm has free cash flow of 3,500,000 USD. When the firm was unlevered it had a cost of equity of 9%. Then it went for permanent leverage by borrowing 500,000 USD at 8% interest rate. Corporate tax rate 40%. What is the WACC of the company? If FCF increase to 4 million next year, what will be the value of the company? (4+2=6)

6. Baba Rafi is considering opening a small sandwich outlet inside the NSU campus. It will require an initial investment of $20,000 and throughout the next 5 years the project will potentially generate free cash flows in the following form:

0

1

2

3

4

5

-20,000

6000

10000

-4000

3500

6500

Now, as we can see an unconventional cash flow in year 3, please calculate the MIRR to decide whether Baba Rafi should invest in this project or not? The required rate of return is the WACC calculated in problem 1.