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1) Spam corporation is financed by common stock holders and has the beta of 1.0 the firm is expected to make the level perpetual stream of earnings and dividends. Stock has the price-earnings ratio of 8 and a cost of equity of 12.5% the company's stock is selling for $50 dollars. Now firm make a decision to repurchase half of its shares and substitute the equal value of debt. Debt is risk free, with 5% interest rate. Company is exempt from corporate income taxes. Supposing MM theory is correct compute the following items?

i) Stock Beta
ii) Price/Earning ratio
iii) The cost of equity
iv) Stock Price
v) Overall cost of capital (WACC)

2) If Charles Deposits $100,000 in the savings account at federally insured bank now at 12% interest how much will it accrue in account in seven years if no withdrawals are made?

Basic Finance, Finance

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