Question: (Please type out all steps, with no images attached. Thank you) 5. If the economy flourishes, Cheng's Plumbing stock is expected to return 22%. If

(Please type out all steps, with no images attached. Thank you)

5. If the economy flourishes, Cheng's Plumbing stock is expected to return 22%. If the economy falls into a recession, the stock's return is projected at 5%. The probability of a boom is 75% while the probability of a recession is 15%. What is the variance of the returns on this stock? (10 marks)

6. Describe three capital structure issues that financial managers must address and explain the effects and significance of these issues. (10 marks)

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