em... Convert PDF to Exc... CalcTool: Conjuncti... nform 1 / 2 58% + Marks Question 2: Due to mismanagement, Pakistan Steel Mills is currently over levered with a debt to capital ratio of 80% and a pre-tax cost of debt of 8% Management of Pakistan Steel Mills is considering a restructuring that will reduce the company's debt to capital ratio to 40% and its pre-tax cost of debt to 6%. Current Recapitalized 40% 80% Debt/(Debt+Equity) Cost of Debt (pre-tas) Cost of Equity 24.10% If the marginal tax rate is 25%, the risk free rate is 2.5%, and the equity risk premium is 6%, estimate the cost of capital after the restructuring (30 Marks] Question 3: Consider the following investment opportunities. FINN 200 - Assessment 3 Expected Retum 16% Meczan lavestment Fund Faisal Investment Fund PSX Fund Standard Deviation 12" 10% 8% 12 Your friend who works at SAROH Investment Advisory has done you a favor and told you that the correlation between returns of Meezan Investment Fund and PSX Fund is 0.7. You also know that Pakistan T Hills are offering 6% return. Which of the following portfolios would you prefer to hold in combination with Pakistan T Bills and why? Option 1 - Meczan Investment Fund Option 2 -- Faisal Investment Fund Option 3 - PSX Fund Option - A portfolio of sixty percent of Meczan l'und and forty percent of PSX Fund g