1. Cream and creamsin has a capital of 40% debt and 60% equity. Tax rate is 32%, bonds trade for 784. Face value is 1,000 coupon rate is 8%, paid semiannual with 7 years to maturity. Common stocks are $15 per share, dividend just paid is 2% and will grow st 6% per year. What is the WACC?
2. Suppose today's stock price of McDonald’s is $150. With probability, 60% the price will rise to $175 in one year and with probability, 40% it will fall to $140 in one year. What is the current price of a European call option with one year until maturity with a strike price of $160 if the risk-free rate of interest is 4%? Use a binomial tree.