Question 2 (25 marks) (a) You have been given the following information: State of Economy Recession Normal Boom Probability of State of Economy 0.25 0.55 0.20 Rate of Return If State Occurs Stock A Stock B 0.06 -0.20 0.07 0.13 0.11 0.33 (i) Calculate the expected return for the two stocks. (ii) Calculate the standard deviation for the two stocks. (6 marks) (10 marks) (b) Miller Manufacturing has a target debt-equity ratio of 40. Its cost of equity is 11.8 percent and its cost of debt is 6.5 percent. If the tax rate is 21 percent, what is the company's WACC? (5 marks) (c) The Nixon Corporation's common stock has a beta of .95. If the risk-free rate is 2.7 percent and the expected return on the market is 10 percent, what is the company's cost of equity capital? (4 marks)