1) Last year hot shots exterminators, inc. carried out the IPO, issuing 1 million common shares with the par value of= $1 to investors at the price of= $10 per share. In its first year of operation, hot shots earned a net income of= $0.20 per share and paid dividend of= $0.05 per share. At the ending of year, company's stock was selling for= $15 per share. Create equity accounts for hot shots at the ending of its 1st year in business, and compute firm's market capitalization.
2) If the firm operates in the perfect capital market, has the required return on its outstanding debt of= 8%, a necessary return on its common stock of= 16%, and the WACC of 13%, determine the firm's debt-to-equity ratio?
3) The unlevered corporation has net income of= $50,000 and required rate of return of 14%. What would value of this firm be if it borrowed= $125,000 to purchse back some of its stock? Suppose a corporate tax rate of= 35%.