8. Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.85, the risk-free rate is 3.7%, and the market risk premium is 4.6%. If your firm's project is all-equity financed, estimate its cost of capital. The cost of capital is _____%. (Round to one decimal place.)
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8. Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.85, the risk-free rate is 3.7%, and the market risk premium is 4.6%. If your firm's project is all-equity financed, estimate its cost of capital.
The cost of capital is _____%. (Round to one decimal place.)
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- Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.81, the risk-free rate is 4.1%, and the market risk premium is 5.4%. If your firm's project is all-equity financed, estimate its cost of capital.Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin’s equity beta is 0.85, the risk-free rate is 4%, and the market risk premium is 5%. If your firm’s project is all equity financed, estimate its cost of capital.Your firm is planning to invest in a new power generation system. The company is an all-equity firm that specializes in this business. Suppose the company's equity beta is 0.9, the risk-free rate is 6.2%, and the market risk premium is 8%. If your firm's project is all-equity financed, then your estimate of your cost of capital is closest to:
- Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.82, the risk-free rate is 4%, and the market risk premium is 5%. If your firm's project is all equity financed, estimate its cost of capital. The estimated cost of capital is% (Round to two decimal places.)Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.83, the risk-free rate is 5%, and the market risk premium is 5%. a. If your firm's project is all-equity financed, estimate its cost of capital. After computing the project's cost of capital you decided to look for other comparables to reduce estimation error in your cost of capital estimate. You find a second firm, Thurbinar Design, which is also engaged in a similar line of business. Thurbinar has a stock price of $24 per share, with 15 million shares outstanding. It also has $104 million in outstanding debt, with a yield on the debt of 4.8%. Thurbinar's equity beta is 1.00. b. Assume Thurbinar's debt has a beta of zero. Estimate Thurbinar's unlevered beta. Use the unlevered beta and the CAPM to estimate Thurbinar's unlevered cost of capital. c. Estimate Thurbinar's equity cost of…True or false? Briefly explain.(a) _____ Your firm has the opportunity to invest $20 million in a new project. The interest rate on the firm’s debt is 7% and the cost of equity is 14%. The cost of capital for the project depends on whether the firm finances the project with new debt or new equity. (b) _____ You are thinking about investing in either stock A or stock B. Both stocks have an expected return of 12%, but stock A has a standard deviation of 25% annually and stock B has a standard deviation of 35% annually. You should invest in stock A since it is less risky. (c) _____ Your firm currently has a debt-to-equity ratio of 10%: debt = $50 million and equity = $500 million (market values). The interest rate on the firm’s debt (rD) is 8% and the cost of equity (rE) is 13%. Since the cost of debt rD is lower than the cost of equity rE, the firm can lower its overall cost of capital by borrowing more. Ignore taxes(d) _____ Your firm had a terrific year. You will soon announce that…
- Suppose you are the financial manager of a company, and there are three potential projects for investment. The risk free rate is 2%. The market risk premium is 6%. The beta of the company is 0.6. You need to invest $100 today for Project A, and project A is expected to provide a cash flow of $6 a share forever. The beta for this project is 0.75. You need to invest $105 today for Project B, and project B is expected pay $3.5 next year. Thereafter, payment growth is expected to be 3% a year forever. The beta for this project is 0.7. You need to invest $175 today for project C, and project C is expected to pay $1.25, $3.80, and $3.00 over the next three years, respectively. Starting in year 4 and thereafter, dividend growth is expected to be 3.5% a year forever. The beta for this project is 0.5. (a1) What's the expected return of the market portfolio? And what's the beta for this market portfolio? (a2) What is the discount rate for each project?(a3) which project(s) will you invest? And…Nalcoa Corp. is financing a project that is in the same industry as its current portfolio of projects. If Nalcoa has a beta of 1.2, the expected return on the market is 15%, and the expected market risk premium is 8%, then what is the weighted average cost of capital for Nalcoa if it plans to continue to be an all equity financed firm? (Answer in decimal form). True or false? Briefly explain.(a) _____ Your firm has the opportunity to invest $20 million in a new project. The interest rate on thefirm’s debt is 7% and the cost of equity is 14%. The cost of capital for the project depends onwhether the firm finances the project with new debt or new equity.(b) _____ You are thinking about investing in either stock A or stock B. Both stocks have an expectedreturn of 12%, but stock A has a standard deviation of 25% annually and stock B has astandard deviation of 35% annually. You should invest in stock A since it is less risky.(c) _____ Your firm currently has a debt-to-equity ratio of 10%: debt = $50 million and equity = $500million (market values). The interest rate on the firm’s debt (rD) is 8% and the cost of equity(rE) is 13%. Since the cost of debt rD is lower than the cost of equity rE, the firm can lower itsoverall cost of capital by borrowing more. Ignore taxes.(d) _____ Your firm had a terrific year. You will soon announce that annual…
- Diamond Drillers is planning to use retained earnings to finance anticipated capital expenditures. The beta coefficient for this stock is 1.20. The risk-free rate of return interest is 9% and the market risk is estimated at 13%. If a new issue of common stock were used in this model, the flotation costs would be 7%. By using the capital asset pricing model, what is the cost of using retained earnings to finance the capital expenditure?Suppose all assumptions of the Capital Asset Pricing Model are true. Consider two firms A and B, which invest in the same type of risky projects. The asset side of both firms is worth $100 million. Firm A is purely equity financed, and firm B is financed with $60 million risk-free debt and $40 million equity. Suppose the risky project’s expected return is 8% and the risk-free interest rate is 2%. a) What is the expected return on firm A’s equity? b) What is the expected return on firm B’s equity? c) What is ratio of firm A’s equity beta to firm B’s equity beta? Consider a new project, which costs $1, 000 now and yields the expected cash flow $1,100 next period. Assume that the new project does not change the beta of either firm. d) Should firm A’s shareholders vote against the new project and WHY? e) Should firm B’s shareholders vote against the new project and WHY?The risk-free rate is 7%. The expected rate of return on the stock market (S&P500) is 10%. What is the appropriate cost of capital for a project that has a beta of -0.2? Use CAPM formula. Select one: a. Cost of capital = 7.2% b. Cost of capital = 11% c. Cost of capital = 6.4% d. Cost of capital = 12%