The Weston Enchilada Company has a levered equity beta of 0.8. The company is

thinking about getting into the Whataburger business. Currently, Weston Enchilada is

financed with 50% long-term debt. The debt is risk free and pays 4% interest before taxes. A

little research suggests that the Whataburger business is expected to yield 16% on after-tax

total operating cash flows. For comparison, another Whataburger in town has an equity beta

of 2.5 but has 20% debt in its capital structure. You can assume that the market return is

12%, marginal tax rates on everything are 35% and the new project would be financed with

50% debt. Find the WACC for the new Whataburger venture and decide what Weston

Enchilada should do?

Assume CAPM holds and you have the following information regarding three investment opportunities:

Project 1 has a project beta of 2.0 and you have estimated that the project’s NPV using a cost of capital of 20% equals zero. Project 2 has a project beta of 1.5 and its NPV using a cost of capital of 10% equals zero. Lastly, project 3 has a project beta of 1.0 and its NPV equals zero using a cost of capital of 6%. None of these projects are ‘scale-enhancing’ for the firm, i.e. they are different than the regular operations the firm currently maintains. As the head of the capital budgeting department you are trying to decide which projects should be accepted. The company has a levered equity beta of 0.8 and a debt-to-equity ratio of 0.5, which the company is planning to maintain for the foreseeable future. The company currently faces a 40% tax rate. Given that the expected return on the market portfolio is 8% and the risk-free rate is 3%, which projects would you accept and why? (Assume there is no capital rationing and the projects are going to be financed with 100% equity.)

Assume you have just been hired as a business manager ofPizzaPalace, a regional pizza restaurant chain. The company’s EBITwas $50 million last year and is not expected to grow. The firm iscurrently financed with all equity, and it has 10 million sharesoutstanding. When you took your corporate finance course, yourinstructor stated that most firms’ owners would be financiallybetter off if the firms used some debt. When you suggested this toyour new boss, he encouraged you to pursue the idea. As a firststep, assume that you obtained from the firm’s investment bankerthe following estimated costs of debt for the firm at differentcapital structures:

If the company were to recapitalize, then debt would be issuedand the funds received would be used to repurchase stock.PizzaPalace is in the 40% state-plus-federal corporate tax bracket,its beta is 1.0, the risk-free rate is 6%, and the market riskpremium is 6%. 1. a. What is business risk? What factors influencea firm’s business risk? b. What is operating leverage, and how doesit affect a firm’s business risk? Show the operating break-evenpoint if a company has fixed costs of $200, a sales price of $15,and variable costs of $10. Using complete sentences and academicvocabulary, please answer question. Please don't copy from othersources. Thank you

Suppose that a TV manufacturing company is currently financed with 20% debt and 80% equity (at market values). The required return on equity is 15%, and the required return on debt is 5%. For all parts of this question, assume that the Modigliani-Miller theorem holds (i.e., there are no frictions such as taxes, costs of financial distress, asymmetric information, etc.).

Find the WACC given the above information.

Then find the WACC assuming that the capital structure changed to 40% debt and 60% equity and the cost of debt rose from 5% to 6%. What is the company’s weighted-average cost of capital after the debt issuance, given that the cost of debt has risen to 6%? What is the required return on the company’s equity?

Please show all work.