I ONLY NEED THE ANSWER TO QUESTION NUMBER 10

1. Use the following scenario for the next 9 questions:

   2YZ Technologies is considering a major expansion program that has been proposed by the companys information technology group. Before proceeding with the expansion, the company must estimate its cost of capital. You have been tasked with doing the estimation The following data has been provided to you.

   1. The firms tax rate is 25%.

   2. For the bond: a) The current price is $1,153.72. b) The coupon rate is 12% with semiannual payment. c) The years to maturity is 15 years. d) New bonds would be privately placed with no flotation cost.

   3. For preferred stock: a) The current price is $111.10 with a quarterly dividend b) The dividend rate is 10%. The par value is $100.

   4. For common stock: a) The current price is $50 per share. b) The next dividend (D1) is expected to be $4.40. Dividends are expected to grow at a constant annual rate of 5% in the foreseeable future. Ignore flotation costs. The company's beta is 1.2. The yield on T-bonds is 7%. The market risk premium is 4%

   5. 2YZ target capital structure is 30% debt, 10% preferred stock, and 60% common equity.

   Question 1

   What is the before-tax cost of debt?

   a.

   10%

QUESTION 2

1. Use the scenario in question 1 to answer:

   What is the after tax cost of debt for 2YZ Technologies?

   	b.	7.5%

QUESTION 3

1. Use the scenario in question 1 to answer:

   What is the firm's cost of preferred stock?

   C. 9.0%

QUESTION 4

1. Use the scenario in question 1 to answer:

   What is the estimated cost of common stock using the dividend growth approach?

   	a.	13.8%

QUESTION 5

1. Use the scenario in Question 1 to answer:

   What is the company's cost of common equity according to the CAPM

   	a.
   	b.
   	c.
   	d.	none of the other options

QUESTION 6

1. Use the scenario in question 1 to answer:

   What is the company's overall, or weighted average cost of capital using the DCF for cost of common equity?

   	d.	9.97%

QUESTION 7

1. Suppose you have determined that you shouldn't ignore flotation costs for new issues of common stock. You find out that flotation costs are 15%. What would the cost of equity be (using the DCF approach) if the flotation costs are incorporated into the calculation?

   	c.	15.35%

QUESTION 8

1. Update 2YZ's WACC for the 15% flotation costs.

   	d.	12.36%

QUESTION 9

1. Your CFO wants to know what the WACC would be if you used the T-bill rate of 2% and used the cost of common equity based on CAPM. Recalculate the cost of common equity under CAPM and indicate what WACC would be with this revision.

   	a.	8.87%
   	b.	10.99%
   	c.	15.35%
   	d.	none of the other options.

QUESTION 10 (THIS IS THE QUESTION I NEED ASSISTANCE ON)

1. Conduct quick sensitivity analysis on the model you used to answer the previous questions. For the sensitivity analysis change (by either increasing or decreasing) the value of one of the factors which affect WACC. Describe what you changed and describe its impact on WACC. Also, hypothesize on what economic/political factors could drive such a change.

   [Answer should be about 5-7 sentences.]