As Beta is 1, then Rm = Ke
As ke given is 14% , Rm is also 14%
For the new project as per CAPM
Ke = Rf + Beta (Rm-Rf)
CAPM Ret = Rf + Beta ( Rm - Rf )
Rf = Risk free ret
Rm = Market ret
Rm - Rf = Risk Premium
Beta = Systematic Risk
Rf = 5%
Rm = 14%
Beta = 0.75
Ke = 5%+ 0.75 (14%-5%)
= 5% + 0.75 *9%
= 5% + 6.75%
= 11.75%
2nd Option has to be selected
Pls do rate, if the answer is correct and comment, if any further assistance is required.
Jeb's Automotive has a beta of 1.0 and a cost of equity of 14 %. The...
A firm is considering a project that is virtually risk-free. The company has a beta of 1.3 and a debt-equity ratio of .4. The appropriate discount rate to use in analyzing this project is: Select one: a. Zero. b. The firm’s latest WACC. c. The cost of equity capital. d. The U.S. Treasury bill rate. e. An adjusted WACC based on a beta of 1.0.
Murphy Inc. operates in the automotive parts business. Murphy is considering expanding. Currently, Murphy has a before tax cost of debt of 6%, and an effective tax rate of 40%. Murphy's capital structure consists of 40% debt and 60% equity. Murphy has identified the following pure play company: Brown Inc. who operates in a similar automotive parts line of business. Brown Inc. has a before tax cost of debt of 5%, a debt to equity ratio of 0.50, and an...
General Products has an asset beta of 1.0, and a debt to equity ratio of 1.3. Their tax rate is 0.40. If the risk free rate is 0.05, and the expected return on the S&P500 is 0.18, what is the cost of levered equity for General Products?
General Products has an asset beta of 1.0, and a debt to equity ratio of 1.3. Their tax rate is 0.40. If the risk free rate is 0.05, and the expected return on the S&P500 is 0.18, what is the cost of levered equity for General Products?
What is the cost of equity for a firm that has a beta of 1.2 if the risk-free rate of return is 2.9 percent and the expected market return is 11.4 percent?
Please show work in excel
Piedmont Hotels is an all-equity company. Its stock has a beta of 1.21. The market risk premium is 6.8 percent and the risk-free rate is 2.6 percent. The company is considering a project that it considers riskier than its current operations so it wants to apply an adjustment of 1.8 percent to the project's discount rate. What should the firm set as the required rate of return for the project? Multiple Choice 948% 10.83 %...
Southern Imports is an all-equity firm with a beta of 1.32. The firm is considering a new project that entails less risk than its current operations and thus management feels that the firm's beta should be lowered by .18 when assigning a discount rate to this project. The market rate of return is 9.4 percent and the risk-free rate is 2.8 percent. What discount rate should be assigned to this project? Group of answer choices A. 11.46 percent B. 11.21...
You are considering undertaking a project that has beta of 1.2, an initial cost of $100 million and annual after-tax inflows of $10 million for 20 years starting at the beginning of next year. The risk-free rate is 2% and the market is expected to yield 5% over the next year. a) Assuming that the CAPM holds, what is the appropriate discount rate for this project? b) What is the NPV of the project? c) What is the IRR of...
6.2 A project's cost of capital The DW Media Group has an equity beta of 1.2 and 50% debt (debt over firm value) in its capital structure. The company has risk-free debt that costs 4% before taxes, and the expected rate of return of the stock market is 12%. DW is considering the acquisition of a new project in publishing business that is expected to yield 20% on after-tax operating cash flow. Penguin Publishing House, which has the same business...
An all-equity firm has a beta of 1.03. The firm is evaluating a project that will increase the output of the firm's existing products. The market risk premium is 6.9 percent, and the risk-free rate is 3.4 percent. What discount rate should be assigned to this expansion project?