Stock A has a beta of .5 and investors expect it to return 5%. Stock B has a beta of 1.5 and investors expect it to return
13%. Use the CAPM to find the expected rate of return and the market risk premium on the market. (Do not round
intermediate calculations. Round your answers to 1 decimal place.)

Expected rate of return

%

Market risk premium

%

Micro Spinoffs Inc. issued 10-year debt a year ago at par value with a coupon rate of 5% paid annually. Today the debt is
selling at $1210. The firm%u2019s tax bracket is 20%.

Micro Spinoffs also has preferred stock outstanding. The stock pays a dividend of $5 per share and the stock sells for
$50.

Micro Spinoffs%u2019s cost of equity is 12%. What is its WACC if equity is 50% preferred stock is 10% and debt is 40% of
total capital? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

WACC

%

Micro Spinoffs Inc. issued 10-year debt a year ago at par value with a coupon rate of 8% paid annually. Today the debt is
selling at $1280. If the firm%u2019s tax bracket is 40% what is its after-tax cost of debt? (Do not round
intermediate calculations. Round your answer to 2 decimal places.)

After-tax cost of debt

%

Moonscape has just completed an initial public offering. The firm sold 1 million shares at an offer price of $10 per share.
The underwriting spread was $.6 a share. The price of the stock closed at $16 per share at the end of the first day of trading. The firm
incurred $200000 in legal administrative and other costs. What were flotation costs as a fraction of funds raised? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

Fraction of funds raised

%

Pandora Inc. makes a rights issue at a subscription price of $8 a share. One new share can be purchased for every six shares
held. Before the issue there were 12 million shares outstanding and the share price was $11.

a.

What is the total amount of new money raised? (Enter your answer in millions rounded to 1 decimal
place.)

New money raised

$ million

b.

What is the expected stock price after the rights are issued? (Round your answer to 2 decimal
places.)

New share price

$

A firm currently has a debt-equity ratio of 1/5. The debt which is virtually riskless pays an interest rate of 6.6%. The
expected rate of return on the equity is 14%. What would happen to the expected rate of return on equity if the firm reduced its debt-equity
ratio to 1/6? Assume the firm pays no taxes. (Do not round intermediate calculations. Round your answer to 2
decimal places.)

Expected rate of return equity

%