AFN

The company is currently operating at full capacity during the current year, and it cannot sell off any of
its fixed assets. Any required financing will be financed by
20% notes payable, 50% long-term debt, and 30% by issuing new common
stock.
a) If the company were to grow its sales by 5%, does it need
external financing? If it does, how much fund should the firm raise from notes
payable, long term debt and common stock?
b) If the company were to grow its sales by 10%, does it
need external financing? If it does, how much fund should the firm raise from
notes payable, long term debt and common stock?

Bond Interests
Assume that the real risk-free rate, r*, is 2.5% and
that inflation is expected to be 6% in Year 1, 5% in Year 2, and 4%thereafter. Liquidity risk premium
(LP) is 0.1%, default risk premium
(DRP) is 0.3%. If 2-year notes yield 9% and 5-year Bond notes
both yield 10%, what is the difference in the maturity risk premiums
(MRPs) on the two notes; that is, what is MRP5 minus MRP2?