1. Assume Chen and Beck are two Japanese firms of comparable size in the igloo building industry. Both have a 30% tax rate. Chen has zero debt, a beta of 1.2 and Beck has a beta of 1.5. Estimate Beck’s .debt-to-equity ratio.
2. Assume you have $2,000 per month to pay your mortgage payment. Assume the monthly mortgage rate =.4%. The maturity of the mortgage is 30 years. How large a mortgage can you afford?