1. Explain in your own words the steps of the corporate valuation model.
2. Show in a graph what happens to the WACC and the value of the overall company as we move from 0% debt to 100% debt. Show the point of the optimal capital structure.
3. Consider a $180,000, 5.50 percent, 15-year, interest-only mortgage with monthly interest payments. a) How large are each of the monthly payments? b) What will be the principal balance outstanding on this mortgage after four years?