Part-A Swat Ceramics Limited is engaged in manufacturing of ceramic tiles and allied products.
The firm has capital structure of 25% debt and 75% equity. The company is planning to
raise the level of debt in its capital structure and would like to estimate the impact of this
change on its cost of equity. Currently the company’s cost of equity, which is based on
CAPM, is 12.0%. The tax rate is 40%. The risk free rate is 5.5% and the market risk
premium is 4.5%. If the company raises its level of debt from the current level to 45%
debt and 55% equity, then what would be the estimated cost of equity of the company?
[5 Marks]
Part-B
Explain the term “BETA” in context of cost of equity of a company?

Consider the local telephone company, a natural monopoly. the following graph shows the monthly demand curve for phone services and the company’s marginal revenue (mr), marginal cost (mc), and average total cost (atc) curves. 0 2 4 6 8 10 12 14 16 18 20 100 90 80 70 60 50 40 30 20 10 0 price (dollars per subscription) quantity (thousands of subscriptions) d mr mc atc 8, 60 suppose that the government has decided not to regulate this industry, and the firm is free to maximize profits, without constraints. complete the first row of the following table. pricing mechanism short run long-run decision quantity price profit (subscriptions) (dollars per subscription) profit maximization marginal-cost pricing average-cost pricing suppose that the government forces the monopolist to set the price equal to marginal cost. complete the second row of the previous table. suppose that the government forces the monopolist to set the price equal to average total cost. complete the third row of the previous table. under average-cost pricing, the government will raise the price of output whenever a firm’s costs increase, and lower the price whenever a firm’s costs decrease. over time, under the average-cost pricing policy, what will the local telephone company most likely do

When peter metcalf describes black diamond’s manufacturing facility in china as a “greenfield project,” he means that partnered with a chinese company to buy the plant . of all market entry strategies, this one carries the lowest risk. because black diamond manufactures its outdoor sports products outside the united states, what risks must its managers be aware of?

The adjusted trial balance for china tea company at december 31, 2018, is presented below: