6. (8 points) Adjusting for Risk Bikes-B-Rode has performed a risk assessment of independent projects. They adjust for project risk by raising the calculated IRR by 2% for low risk projects, leaving the IRR the same for moderate risk projects, and lowering the calculated IRR by 3% for high risk projects. Without capital rationing, and given their cost of capital of 10%, which projects should Bikes-B-Rode accept? Why? Risk Project A Cost NPV IRR Level ABCD $16,000 $ -1,000 8% Low B $28,000 $ 4,000 13% Low C $34,000 $ 4,000 12% Average D $42,000 $ 5,000 12% High 7. (8 points) Need for External Financing To increase production capacity by 20%, a $3 million investment is needed. The firm wants to maintain a 40% debt-to-asset ratio, and continue to pay 75% of income as dividends. Net Income was $4 million. A. How much External Financing is needed? B. How much new Debt must they Issue? C. How much new external equity should they issue? 8. (8 points) Dividends Suppose a firm has a retention ratio of 60 percent, net income of $8 million, and 4 million shares outstanding. What would be the dividend per share paid out on the firm's stock? 9. (8 points) Stock Price to Profit You buy an "at the money" April call option on M&M Corp. common stock, which has a strike price of $40 and a premium of $3.15. What must happen to the price of M&M Corp. stock for you to make a profit?