please show work so I can understand how to do it on my own!! thank you!

v Font Paragraph Styles Dictate Sensitivity Section 1. 4 points cach. Address only X/Y questions in this section. Clearly strike out the questions not addressed. Show work for partial credit. 2. Discuss the Modigliani & Miller propositions for capital structure and dividend policy. How does the tax-deductibility of interest expense impact the MM proposition on the irrelevance of capital structure? How do individual-tax policies affect the MM theory regarding the irrelevance of dividend policy? I 3. Capital budgeting methods typically employ free cash flows (FCFS). How (specifically) do you calculate these FCFS? 4. Discuss how the components of the WACC (in particular ks) are estimated. 5. Cisco is raising funds for its large project in Beaverton, OR. The project will need a capital outlay of $700 million, which will be financed in the following manner: $300m debt; yield to maturity based on bond proceeds after investment banking fees: 5.5% $400m equity, new issue of stock. The company paid $2 in dividends last year, and dividends are expected to grow at 3% per year forever. Cisco's stock price is $35, and investment banking fees will be S1 per share issued What is the hurdle rate for the project? 6. Differentiate between operating leverage and financial leverage. Discuss how leverage ought to differ across companies depending on their a Industry b. Life cycle stage (age or maturity) c. Stability of free cash flows 7. What are (and what is the relevance of) unlevered and levered betas? Consider the following while using Hamada's equation. a. If AMZN has a beta of 1.2 and no financial leverage, what is its estimated beta if it changes its Deht to Equity ratio (D/S) to 1. b. If AAPL has a beta of 1.2 and a D/S ratio of 1, what is its estimated beta if it changes its D/S ratio to 0.7. Font Font Paragraph Styles Dictate Sensitivity 8. You wish to estimate the required rate of retum on your new mushroom farming business, You have borrowed Simillion at the cost of S% and have used another simillion of your own funds. To estimate the cost of equity, you will use information available on the proxy company, MuslumomsRus (MRU). MRU has a beta of 1 and is completely free of debt. The expected retum on the Market is 10% and Treasury bonds are yielding 3%. Establish your projects required rate of return from the above data. 9. Discuss how each of the following would affect retained earnings: a 2:1 stock split. b. 25% stock dividend. c. $50 million stock-repurchase. d. $50 million cash dividends. 10. Notbed Corp. is to choose between 2 mutually exclusive projects that will be funded with retained camings. The projects are expected to have the following cash flows: Project A: Year 0: ($1,000), Years ending 1-5: $600. Project B: Year 0: ($10,000), Years ending 1-5: $6100. The beta of the projects is 1 and the expected return on the market is 10% and RF-5%. Which of the projects would be selected under the assumption that the company is rationing capital? I 11. With NPV its preferred capital budgeting technique, your company is evaluating two mutually exclusive projects with unequal lives. Project X will incur a one-time cost of $1 million and will result in annual cash-flows of $300,000 for the next 5 years. Project Y will incur a one-time cost of $1 million and result in annual cash-flows of $200,000 for 10 years. The cost of capital is 8%. Which of the two projects ought to be selected? (Must show work). 12. How are forward contracts, futures, swaps, and options employed in risk management at corporations? 13. Project X will require an initial investment of $10m to be financed with retained earings. The beta of X is 1, and the expected return on the Market is 11%. The project is expected to produce the following cashflows: year 1: SO, year 2: $5m, year 3: -Sim, year 4: $8m. Establish the MIRR of the project and indicate whether you would pursue it. me Insert Draw Design Layout >> Tell me Share Commer X A. ste Font Paragraph Styles Dictate Sensitivity 14. The management of Tarantula oodies is considering a reduction in the corporation's debt ratio. The following information is available: Debt $10,000,000, kd-7.5%, tax-rate-30% Common Stock $23,000,000, P=1.2, RF-3.5%, E(RM)-10% The issuance of $5,000,000 in common stock and repurchase of debt in that same amount is expected to result in the reduction in kd to7%. The impact of the action on the cost of equity is to be determined. Should management pursue the change in debt ratio? Why/whiy not? 15. Some industries tend to have a greater dividend payout ratio than others. Giving imples of these industries, discuss why this is the case. 16. Briefly discuss the following dividend policy theories hypotheses 1) MM Theory i) Tax Clientele; how have recent tax policy changes affected this argument? iii) Bird in hand iv) Dividend changes as powerful signals ) Dividends as an influencer on agency costs The next two questions are based on the following information: You are to decide between two mutually exclusive projects. The first has an initial investment of $25 million, and FCFs of $10 million for the next 3 years. The second has an initial investment of $25 million and FCFs of $15 million in the first year, S5 million in the second year, and $20 million in the third year. The cost of capital for either project is 9%. 17. Select between the two projects using NPV and Profitability Index 18. Select between the two projects using MIRR. 89% li Page 5 of 7 1223 words NF Focus e Share Comme X [G V Font Paragraph Styles Dictate Sensitivity 19. You own a gold mine expected to produce Imillion ounces of gold over the course of the next month. Say the current price of gold is $1500 oz., and following options exist: Current price of gold Strike 1 month Calls 1 month Puts SI500 1450 $55 $9 $1500 1550 $11 $53 Provide an options strategy for the CFO that would collar the price of gold over the next month. Be specific, and provide the total cost of the strategy 20. Provide the "financing hierarchy" favored by US Corporations. 21. Consider the following information on CSCO options CSCO price Strike Call - July SSS $54 $3 Put - July $1.90 You wish to speculative $10,000 on the expectation that CSCO to be much more volatile (than indicated by implied volatility) until the third week of July (expiration). Discuss a speculative strategy based on this hunch. What is the payoff from your strategy if, at expiration, CSCO is trading at $22 22. Find the fair value of a call and put on AAPL employing a 1-step binomial tree from the following information: AAPL current price (84266 Strike (X)-265 Expiration (T) - 9 months SD of AAPL returns (0) - 20% RF-5% (9 month treasury bill rate) 23 Stock pricing questions - multi growth, constant growth 24. Hedonic pricing question 89% M ar 5 of 7 1213 words Focus v Font Paragraph Styles Dictate Sensitivity Section 1. 4 points cach. Address only X/Y questions in this section. Clearly strike out the questions not addressed. Show work for partial credit. 2. Discuss the Modigliani & Miller propositions for capital structure and dividend policy. How does the tax-deductibility of interest expense impact the MM proposition on the irrelevance of capital structure? How do individual-tax policies affect the MM theory regarding the irrelevance of dividend policy? I 3. Capital budgeting methods typically employ free cash flows (FCFS). How (specifically) do you calculate these FCFS? 4. Discuss how the components of the WACC (in particular ks) are estimated. 5. Cisco is raising funds for its large project in Beaverton, OR. The project will need a capital outlay of $700 million, which will be financed in the following manner: $300m debt; yield to maturity based on bond proceeds after investment banking fees: 5.5% $400m equity, new issue of stock. The company paid $2 in dividends last year, and dividends are expected to grow at 3% per year forever. Cisco's stock price is $35, and investment banking fees will be S1 per share issued What is the hurdle rate for the project? 6. Differentiate between operating leverage and financial leverage. Discuss how leverage ought to differ across companies depending on their a Industry b. Life cycle stage (age or maturity) c. Stability of free cash flows 7. What are (and what is the relevance of) unlevered and levered betas? Consider the following while using Hamada's equation. a. If AMZN has a beta of 1.2 and no financial leverage, what is its estimated beta if it changes its Deht to Equity ratio (D/S) to 1. b. If AAPL has a beta of 1.2 and a D/S ratio of 1, what is its estimated beta if it changes its D/S ratio to 0.7. Font Font Paragraph Styles Dictate Sensitivity 8. You wish to estimate the required rate of retum on your new mushroom farming business, You have borrowed Simillion at the cost of S% and have used another simillion of your own funds. To estimate the cost of equity, you will use information available on the proxy company, MuslumomsRus (MRU). MRU has a beta of 1 and is completely free of debt. The expected retum on the Market is 10% and Treasury bonds are yielding 3%. Establish your projects required rate of return from the above data. 9. Discuss how each of the following would affect retained earnings: a 2:1 stock split. b. 25% stock dividend. c. $50 million stock-repurchase. d. $50 million cash dividends. 10. Notbed Corp. is to choose between 2 mutually exclusive projects that will be funded with retained camings. The projects are expected to have the following cash flows: Project A: Year 0: ($1,000), Years ending 1-5: $600. Project B: Year 0: ($10,000), Years ending 1-5: $6100. The beta of the projects is 1 and the expected return on the market is 10% and RF-5%. Which of the projects would be selected under the assumption that the company is rationing capital? I 11. With NPV its preferred capital budgeting technique, your company is evaluating two mutually exclusive projects with unequal lives. Project X will incur a one-time cost of $1 million and will result in annual cash-flows of $300,000 for the next 5 years. Project Y will incur a one-time cost of $1 million and result in annual cash-flows of $200,000 for 10 years. The cost of capital is 8%. Which of the two projects ought to be selected? (Must show work). 12. How are forward contracts, futures, swaps, and options employed in risk management at corporations? 13. Project X will require an initial investment of $10m to be financed with retained earings. The beta of X is 1, and the expected return on the Market is 11%. The project is expected to produce the following cashflows: year 1: SO, year 2: $5m, year 3: -Sim, year 4: $8m. Establish the MIRR of the project and indicate whether you would pursue it. me Insert Draw Design Layout >> Tell me Share Commer X A. ste Font Paragraph Styles Dictate Sensitivity 14. The management of Tarantula oodies is considering a reduction in the corporation's debt ratio. The following information is available: Debt $10,000,000, kd-7.5%, tax-rate-30% Common Stock $23,000,000, P=1.2, RF-3.5%, E(RM)-10% The issuance of $5,000,000 in common stock and repurchase of debt in that same amount is expected to result in the reduction in kd to7%. The impact of the action on the cost of equity is to be determined. Should management pursue the change in debt ratio? Why/whiy not? 15. Some industries tend to have a greater dividend payout ratio than others. Giving imples of these industries, discuss why this is the case. 16. Briefly discuss the following dividend policy theories hypotheses 1) MM Theory i) Tax Clientele; how have recent tax policy changes affected this argument? iii) Bird in hand iv) Dividend changes as powerful signals ) Dividends as an influencer on agency costs The next two questions are based on the following information: You are to decide between two mutually exclusive projects. The first has an initial investment of $25 million, and FCFs of $10 million for the next 3 years. The second has an initial investment of $25 million and FCFs of $15 million in the first year, S5 million in the second year, and $20 million in the third year. The cost of capital for either project is 9%. 17. Select between the two projects using NPV and Profitability Index 18. Select between the two projects using MIRR. 89% li Page 5 of 7 1223 words NF Focus e Share Comme X [G V Font Paragraph Styles Dictate Sensitivity 19. You own a gold mine expected to produce Imillion ounces of gold over the course of the next month. Say the current price of gold is $1500 oz., and following options exist: Current price of gold Strike 1 month Calls 1 month Puts SI500 1450 $55 $9 $1500 1550 $11 $53 Provide an options strategy for the CFO that would collar the price of gold over the next month. Be specific, and provide the total cost of the strategy 20. Provide the "financing hierarchy" favored by US Corporations. 21. Consider the following information on CSCO options CSCO price Strike Call - July SSS $54 $3 Put - July $1.90 You wish to speculative $10,000 on the expectation that CSCO to be much more volatile (than indicated by implied volatility) until the third week of July (expiration). Discuss a speculative strategy based on this hunch. What is the payoff from your strategy if, at expiration, CSCO is trading at $22 22. Find the fair value of a call and put on AAPL employing a 1-step binomial tree from the following information: AAPL current price (84266 Strike (X)-265 Expiration (T) - 9 months SD of AAPL returns (0) - 20% RF-5% (9 month treasury bill rate) 23 Stock pricing questions - multi growth, constant growth 24. Hedonic pricing question 89% M ar 5 of 7 1213 words Focus