Consider a firm with a capital structure given below. Assume the CAPM holds and that we are in a Miller$-$Modigliani world

with corporate taxes.

At this capital structure:

i What is the firm's before$-$tax cost of debt?

rD

$1$ point

ii What is the firm's cost of equity?

$rE$

$$

r

I

II

I

II

$$

I

$$

int

$$

$1$

$1$

T

$1$

I

ts

iii What is the firm's after$-$tax WACC

iv What is the firm's required return on assets?

$2$ points

The firm decides to recapitalize to a new capital structure with less debt and less risky debt given below.

This year, your firm generated Sales of $100,$ Costs of goods sold of $40,$ and Depreciation of $10.$

You also spent $15$ in Capital Expenditures and had an increase in Net Working Capital of $3.$ Corporate Tax Rate is $20\%.$

What is your Free Cash Flow for the year?

$5$ points

He has to issue Junior Debt to obtain the capital to undertake the project now. Assume all cash flows are discounted at $0\%.[$Whole question is worth $12$ points.$]$

nt$.)$