Question: QUESTION FIVE A. Empress Express has no debt but can borrow at 8.2 percent. The WACC for the firm is currently at 11 percent, and

QUESTION FIVE

A. Empress Express has no debt but can borrow at 8.2 percent. The WACC for the

firm is currently at 11 percent, and the tax rate is 35 percent.

I. What is the cost of equity for the firm? [2 Marks]

II. If the firm converts to 25 percent debt, determine the total cost of equity and

the WACC for the firm. [8 Marks]

B. The analysis of inventory policy is analogous to the analysis of credit policy.

C. Explain how efficient inventory management affects the risk, liquidity and

profitability of the firm. [9 Marks]

D. Discuss any three (3) sources of information that you might use to analyze a credit

applicant. [6 Marks]

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