What would happen to the required return on companys stock

Reference no: EM132297679

Question 1. Given the following information for ONAIR Co., find the WACC. Assume the company's tax rate is 35 percent.

Debt	10,000, 5% semi-annual payment coupon bonds outstanding. $1,000 par value, 30 years to maturity. Selling for 98% of par value.
Common Stock	500,000 shares outstanding, selling for $70 per share, the beta is 1.2
Market	8% market risk premium and 4% risk-free rate

Question 2. Assume that capital markets are perfect. A firm finances its operations via $60 million in stock with a required return of 15% and $40 million in bonds at 8%. Assume the company can use the proceeds to retire $10 million worth of equity, (a) what would happen to the firm's WACC?

(b) What would happen to the required return on the company's stock?

Question 3. An all-equity firm is considering the following projects:

Project	Beta	IRR
A	0.75	8.4%
B	0.95.	12.6%
C	1.15	13.5%
D	1.32	14.5%
E	1.45	15.9%

The T-bill rate is 3 percent, and the expected return on the market is 12 percent.

a. Which projects have a higher expected return than the firm's 13 percent cost of capital?

b. Which projects should be accepted? Why?

Reference no: EM132297679

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