Use the following info. A corporation has 10,000,000 shares of stock outstanding at a of $60 per share. They just paid a dividend of $3 and the dividend is expected to grow by 6% per year forever. The stock has a beta of 1.2 the current risk free rate is 3% and the market risk premium is 5%. The corporation also has 500,000 bonds outstanding with a price of 1,100 per bond. The bond has a coupon rate of 9% with semiannual interest payments, a face value of 1,000 and 13 years to go until maturity. The company plans on paying off r he debt until they reach their target debt ratio of 30%. They expect their cost of debt to be 6% and their cost of equity to be 9% under this new capital structure. The tax rate is 40%.

1. What is the required return on corporation's stock?

a. 9% b. 10.6% c. 11.3% d.12.2%

2. What is the expected return on the corporation's stock?

a 9% b 10.6% c 11.3% d 12.2%

3. What is the yield to maturity on the company's debt?

a. 7.25% b 7.75% c 8.25% d 8.75%

4. What % of their current market value capital structure is made up of equity?

a. 35% b 42% c 52% d 60%

5. What is their WACC using their target Capital structure and expected cosr of debt and equity?

a 7.4% b 8.5% c 9.1% D 9.8%

6. Given the new cost of deb, what should be the new price of the bond?

a. $920 b $1060 c $1172 d $1268

7. Given the new cost of equity, what should be the new price of the stock?

a. $71 b $82 c $91 d $106