1. Pewter & Glass is an all-equity firm that has 145,000 shares of stock outstanding. The company is in the process of borrowing $750,000 at 6.8 percent interest to repurchase 8,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?
A. 14,702,500
B. 13,593,750
c. 14,250,000
D 12,500,000
E. 12,648,250
2. The returns on the common stock of New Image Products are quite cyclical. In a boom economy, the stock is expected to return 32 percent in comparison to 14 percent in a normal economy and a negative 28 percent in a recessionary period. The probability of a recession is 25 percent while the probability of a boom is 20 percent. What is the standard deviation of the returns on this stock?
A. 21.41
B. 21.56
C. 25.83
D. 32.08
E.39.77