[I will give big tip for all the questions to be answered correctly with shown work]

[I will give big tip for all the questions to be answered correctly with shown work]


Questions (attached)


1. You need a 20-year, fixed-rate mortgage to buy a new home for $300,000. Your mortgage bank will lend you the money at a 8 percent APR for a 240 month loan. You can only afford a monthly payment of $800. How much downpayment should you put at the time of purchase? Plese show your work. [10 points]




3. Firm Z has issued 1,000,000 bonds. Each bond is priced at $980 and has a face value of $1000. It pays semiannual coupon payments and has a coupon rate of 6%. The bonds will mature in 20 years. Stock price of Firm Z is $10, and there are 40 million shares outstanding. There are 3 million shares of preferred stock, which offers $2 dividend and is priced at $40. Equity beta of Firm Z is 1.5 and current market portfolio yields 8% and the risk free rate is 2%. Corporate tax rate is 30%. Find the costs of debt, equity, preferred stock and WACC. Please show your work. [20 points]


Firm Z has invested $5 million in marketing campaign to assess the demand for the product Minish. This product will be in the market next year and will last five years. Revenues are projected to be $50 million per year along with expenses of $40 million. The firm spends $20 million immediately on equipment that will be depreciated using MACRS depreciation to zero. Additionally, it will use some fully depreciated existing equipment that has a market value of $6 million. Finally, Minish will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). But, receivables are expected to account for 10% of annual sales. Payables are expected to be 10% of the annual cost of goods sold (COGS) between year 1 and year 4. All accounts payables and receivables will be settled at the end of year 5. Based on this information and WACC in the first part of the question, find the NPV of the project. Identify the IRR of the project. Draw NPV vs r graph of the project. Will you accpet this project? Why? Please show your work. [30 points]

[I will give big tip for all the questions to be answered correctly with shown work]

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