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Plutonic Corporation has a debt ratio of 30%, a cost of debt (Rd) of 6.00%, and an equity beta (B) of 1.38. Assuming a corporate

  1. Plutonic Corporation has a debt ratio of 30%, a cost of debt (Rd) of 6.00%, and an equity beta (B) of 1.38. Assuming a corporate tax rate (Rt) of 35%, a risk-free rate (Rf) of 1.5%, and an EMRP of 5.0%, what is Plutonic's Unlevered Cost of Capital (UL)? What is Plutonic's WACC? What is the upside limit of Plutonic's WACC? Please provide a specific figure.
  2. The current 2-Year U.S. Treasury Note yields 0.14%. What will the yield on the 2-Year Note be 3 years from now? If the Federal Reserve increases short rates in 25 basis point increments, estimate how many times the Fed will increase interest rates during the next 3 years.
  3. Auric Enterprises has an equity beta (B) of 1.17. Assuming an EMRP of 5% and a risk free rate (Rf) of 1.5%, what is Auric's cost of equity (Re)? Auric has a 100% dividend payout ratio and currently pays a dividend of $3.80. After 5 years it intends to reduce its dividend to $3.50 with a payout ratio of 80%. Using the Dividend Discount Model, what is the current value of Auric's stock?
  4. Congratulations! You have just won a $20 million Powerball Lottery. You have a choice of payouts. You can either take a $15 million lump-sum today or you can receive an annuity of $1 million for the next 20 years. Assuming a discount rate of 3% which one should you choose? What if the annuity grows at 1% per year? Please show all calculations.
  5. Primula Corporation decides to issue a 30-year corporate bond. The bond carries a coupon of 6%, which represents the underlying 30-Year Treasury Note yield of 4% plus a 2% credit spread. If the yield-to-maturity (YTM) of the bond at issuance is also 6%, what is the price of the bond? A year later, the 30-Year Treasury still yields 4%, but the Primula credit spread has widened to 3%. What is the new price of the bond? If you decided to buy $10,000 worth of Primula bonds at a yield of 8%, what is the NPV of that purchase?

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1 Plutonic Corporations Unlevered Cost of Capital UL is calculated as follows UL Rf Beta EMRP UL 15 138 50 UL 89 Plutonics Weighted Average Cost of Capital WACC is calculated as follows WACC E V Re D ... blur-text-image

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