ASSIGNMENT 5MGF 301Corporation FinanceSpring 2009DUE: Monday, April 27th at 6:00pm in Jacobs 365You may in a group of up to 4 on this Assignment. Please indicate clearly on all submitted Assignments who the members of the group are. Please note, all assignments submitted with more than 4 group members will automatically receive a 0 grade. No late assignments will be accepted. You may hand in the assignment in person in Jacobs 365 (put it under the door if no one is there) or submit it by email to the Digital Dropbox on UBLearns before the time it is due. All electronic submissions must be to the Digital Dropbox (go to Control Panel, Digital Dropbox and hit “Send file”). Note: If you use Digital Dropbox, please follow all the Digital Dropbox rules (see Syllabus).Answer all of the following questions. For each answer, show your work.________________________________________________________________________________________________________1. The total book value of WTC’s equity is $20 million and book value per share outstanding is $8. The stock of WTC is currently selling for a price of $25 per share and the beta of WTC is .85. The bonds of WTC have a face value of $43 million and sell at a price of 95 percent of face value. The yield to maturity on the bonds is 7 percent and the firm’s tax rate is 35 percent. If the E(Rm) = 11% and Rf = 2%, calculate the WACC of WTC. 2. Suppose the company in #1 is considering the following expansion projects. How would you calculate the required rate of return to use in the NPV analysis of the following: Explain.(a) The company is considering an expansion to double the production of its current product. The company can issue equity or it can issue debt yielding 7% topay for the expansion. (b) The company is considering adding a new product in a different line of business that is unrelated to their current product.3. One year ago, an American investor bought 200 shares of London Bridges at a price of£52 (or 52 UK pounds) per share when the exchange rate was $2/1£ (or $2 dollars = 1 pound). The investor also invested 20,000 Japanese Yen in a money market fund in Japanlast year when the exchange rate was 110 Yen = $ 1 US. (a) Using current exchange rates, what is today’s value of the investor’s portfolio in U.S. dollars if the UK investment increased 10% (in local currency) and the Japan investment increased 2% (in local currency)?(b) What is the overall rate of return on the portfolio over the last year?4. An American firm is evaluating an investment in Mexico. The project is expected to produce a cash flow of 400 million pesos each year for 5 years. If the appropriate discount rate is 13%, how much in U.S. dollars is the maximum the firm is willing to pay as the initial cost of the project? (Note: use the current exchange rate for
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