(i)To estimate the cost of capital, you survey the capital market and find that the average beta is 2 for all-equity firm in the similar industry as your new business. Under the risk-free rate of 1% and the market-portfolio return of 7%, please compute the cost of capital for your business if you want to finance the project by equity only. (3 points)

(ii) Following the previous question, if your business will cost $100,000 to build, please compute its net present value. (3 points)

(iii) Now suppose you want to issue both debts and equities to finance the business. Specifically, you would like to maintain the debt-to-equity ratio equal to one. If the beta of debt is 0.5, compute the costs of capital of the business for this scenario. (3 points)

(iv) Following the previous questions, what are the values of debts and equities? (3 points)

(V) Following the previous questions, what is the value of interest tax shield? (3 points)

(i)Please compute the Tobin's Q for these two companies. (4 points)

(ii)Please employ the Du-Pont identity to compare the performance of these two companies, and comment on their differences. (6 points)

i) What is ESG? (3 points)

ii) Provide each example for firm's investment in E and S respectively. (4 points)

iii) Provide one argument for why investment in ESG could be bad for the firmn.(4 points)

20. Under Modigliani-Miller world, one firm has its original balance sheet as the following:   What's the price per share, and firm value after the following two cases: (1) the firm paid cash dividend of $500,000 and (2) the stock repurchases of SS00,000? Compare the firm value in both cases. What does your resuit suggest the choice between cash dividend and stock repurchase in Modigliani-Miller world?(9 points total) Debt $550,000 Equity 1,450,000 2,000,000 Value of Firm 2,000,000 2,000,000

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