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?

Alandowner and his neighbor purchased adjoining undeveloped lots. after both built homes on their respective lots, the landowner suggested to the neighbor that a common driveway be built where the two lots joined. the neighbor agreed. the landowner and the neighbor split the cost of constructing the driveway and entered into a written agreement to equally share the costs of its upkeep and maintenance. the agreement was recorded in the county recorder's office. two years later, the neighbor built a new driveway located entirely on his lot. the common driveway, which the landowner continued to use but which the neighbor no longer used, began to deteriorate. the landowner asked the neighbor for money to maintain the common driveway, but the neighbor refused to contribute. three years later, the neighbor conveyed his lot to a friend. the friend entered into possession and used only the driveway built by the neighbor. by this time, the common driveway had deteriorated badly and contained numerous potholes. the landowner asked the friend to pay half of what it would take to repair the common driveway. the friend refused. the landowner repaired the driveway and sued the friend for 50% of the cost of repairs. will the landowner prevail?

Jack manufacturing company had beginning work in process inventory of $8,000. during the period, jack transferred $34,000 of raw materials to work in process. labor costs amounted to $41,000 and overhead amounted to $36,000. if the ending balance in work in process inventory was $12,000, what was the amount transferred to finished goods inventory?

The textbook defines ethics as “the principles of conduct governing an individual or a group,” and specifically as the standards one uses to decide what their conduct should be. to what extent do you believe that what happened at bp (british petrolium) is as much a breakdown in the company’s ethical systems as it is in its safety systems, and how would you defend your conclusion?