Only accept hand$-$written assignment. Use pen and paper, ipad or tablet, save as pdf file and upload.

After uploading your assignment, download and open it to make sure that the file is not corrupted.

Please keep at least $2$ decimal points for dollar amounts and at least $4$ significant digits for rates.

Question $1$

After being the CFO of Mullen Inc. for over $10$ years, you start your own company to directly compete

with Mullen. You want to use Mullen's information to estimate your company's cost of capital.

Mullen has $30,000$ common stocks outstanding with a price of $$10\mathrm{.}3$ per share. The current dividend is

$$1\mathrm{.}5$ per share and will grow at $3\%$ per year. The market risk premium is $10\%$ and the risk$-$free rate is $4\%.$

Mullen also finances its operations with two bonds. The first bond has $$80,000$ par value, $15\%$ coupon

rate, $12$ years to maturity, and is trading at $120(120\%$ of par$).$ The second bond has $$60,000$ par value,

$10\%$ coupon rate, $15$ years to maturity, and is trading at YTM of $13\mathrm{.}5\%.$ All bonds pay semi$-$annual

coupons. The tax rate is $30\%.$

a$)$ Calculate Mullen's cost of equity.

b$)$ Calculate Mullen's after$-$tax cost of debt.

c$)$ Calculate Mullen's WACC.

d$)$ Calculate Mullen's unlevered beta.

e$)$ Calculate your company's cost of capital if your target debt$-$to$-$equity ratio is $0\mathrm{.}1$ and cost of

debt decreases $48bps(1\%=100bps).$