1. LL Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 8%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL's after-tax cost of debt? Explain how cost of capital financing techniques affects the organization.

2. A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 12%. What is the project's NPV? Hint: Begin by constructive a time line.) Explain how to use capital budgeting and relevant cash flow to compare investment alternatives.

3. Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a levered beta of 1.6. If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier's shareholders require to be compensated for financial risk? Explain how varying degrees of financial risk may command variations in shareholder return expectations.