You were given the following data regarding Apple Corp

Total equity = $100,000,000

Total debt = $50,000,000

After tax interest on debt = 6% per annum

Beta = 1.6

Current market price = $10/share

Expected selling price next year = $10.50/share

Expected dividend next year = $0.42/share

You have also found out from the website that the interest rate for Singapore Treasury Bill is 2.5%, and average market return is 7.5%

1. What is the market risk premium?
2. What is the required return for Apple Corp? What is the expected return for Apple Corp? Will you invest in shares of Apple Corp? Why?
3. What is the weighted average cost of capital (WACC) for Apple Corp?
4. Apple Corp has decided to increase its debt to $100,000,00 by taking a loan at after-tax interest rate of 8%. What is the WACC after this change? Should Apple Corp proceed with this change? Why?
5. Apple Corp has decided to proceed with this $50,000,000 loan. Out of this amount, $30,000,000 will be used to pay dividend, and $20,000,000 will be kept in bank as fixed deposit which will earn 3.5% interest while waiting for opportunities to invest in viable projects. Discuss the appropriateness and the implications of its actions.