Question

Shooting Star Corporation (SSC) wishes to establish a new production plant in the East midlands under...

Shooting Star Corporation (SSC) wishes to establish a new production plant in the

East midlands under a new company named Orange Star (OS).

SSC Beta = 1.2

SSC D/E = 0.3

OS D/E = 0.6

Tax rate = 40%

Risk Free Rate = 5%

Market Return =15%

Where D/E is Debt/ Equity ratio

a) What is OS Beta?

b) What is OS cost of equity

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Sunset Sarsaparilla is building a new bottling plant. This plant will cost $140M to construct, and...
Sunset Sarsaparilla is building a new bottling plant. This plant will cost $140M to construct, and will produce EBIT of $19M per year for the next 12 years. Sunset has a tax rate of 40%. Another firm in the same industry, Vim Pop, has an equity beta of 1.2 and a debt to equity ratio of 0.9. Sunset's debt to equity ratio is 1.5, the risk free rate is 4%, and the excess return on the market is 8%. Assume...
Sunset Sarsaparilla is building a new bottling plant. This plant will cost $140M to construct, and...
Sunset Sarsaparilla is building a new bottling plant. This plant will cost $140M to construct, and will produce EBIT of $19M per year for the next 12 years. Sunset has a tax rate of 40%. Another firm in the same industry, Vim Pop, has an equity beta of 1.2 and a debt to equity ratio of 0.9. Sunset’s debt to equity ratio is 1.5, the risk free rate is 4%, and the excess return on the market is 8%. Assume...
Sunset Sarsaparilla is building a new bottling plant. This plant will cost $140M to construct, and...
Sunset Sarsaparilla is building a new bottling plant. This plant will cost $140M to construct, and will produce EBIT of $19M per year for the next 12 years. Sunset has a tax rate of 40%. Another firm in the same industry, Vim Pop, has an equity beta of 1.2 and a debt to equity ratio of 0.9. Sunset’s debt to equity ratio is 1.5, the risk free rate is 4%, and the excess return on the market is 8%. Assume...
Cadillac wishes to finance the construction of a new automobile that will replace its current Escalade...
Cadillac wishes to finance the construction of a new automobile that will replace its current Escalade model. Its parent company, General Motors, has a debt-to-equity ratio of 2.7 and a stock-market beta of 1.3. The market risk premium is 10% and the risk-free rate is 3%. Suppose that Cadillac funds its project only with equity. What is its cost of capital, if it uses General Motors as a benchmark? Assume, for convenience, that General Motos’ debt is risk-free. Please show...
Hula Enterprises is considering a new project to produce solar water heaters. The finance manager wishes...
Hula Enterprises is considering a new project to produce solar water heaters. The finance manager wishes to find an appropriate risk adjusted discount rate for the project. The (equity) beta of Hot Water, a firm currently producing solar water heaters, is 1.1. Hot Water has a debt to total value ratio of 0.3. The expected return on the market is 0.13, and the riskfree rate is 0.03. Suppose the corporate tax rate is 33 percent. Assume that debt is riskless...
Hula Enterprises is considering a new project to produce solar water heaters. The finance manager wishes...
Hula Enterprises is considering a new project to produce solar water heaters. The finance manager wishes to find an appropriate risk adjusted discount rate for the project. The (equity) beta of Hot Water, a firm currently producing solar water heaters, is 1. Hot Water has a debt to total value ratio of 0.3. The expected return on the market is 0.1, and the riskfree rate is 0.03. Suppose the corporate tax rate is 34 percent. Assume that debt is riskless...
Hula Enterprises is considering a new project to produce solar water heaters. The finance manager wishes...
Hula Enterprises is considering a new project to produce solar water heaters. The finance manager wishes to find an appropriate risk adjusted discount rate for the project. The (equity) beta of Hot Water, a firm currently producing solar water heaters, is 1.1. Hot Water has a debt to total value ratio of 0.3. The expected return on the market is 0.09, and the riskfree rate is 0.03. Suppose the corporate tax rate is 35 percent. Assume that debt is riskless...
Hula Enterprises is considering a new project to produce solar water heaters. The finance manager wishes...
Hula Enterprises is considering a new project to produce solar water heaters. The finance manager wishes to find an appropriate risk adjusted discount rate for the project. The (equity) beta of Hot Water, a firm currently producing solar water heaters, is 1.4. Hot Water has a debt to total value ratio of 0.3. The expected return on the market is 0.11, and the riskfree rate is 0.06. Suppose the corporate tax rate is 38 percent. Assume that debt is riskless...
Problem #2 Assume that a conglomerate wishes to consider establishing a new division. Those companies within...
Problem #2 Assume that a conglomerate wishes to consider establishing a new division. Those companies within industry in which the proposed division will be part, reflect an average 'beta' of 1.20 and a Market Value based Debt/Asset ratio 0.40. The conglomerate is anticipating a Market Value based Debt/Asset ratio for their new division of 0.67. With a prevailing risk-free rate of 6%, an historic excess market return of 7.50%, and a corporate tax of 21%, calculate the weighted after-tax cost...
You have been asked by JJ Corporation to estimate its cost of capital. It currently has...
You have been asked by JJ Corporation to estimate its cost of capital. It currently has 9.1 million shares, $0.1 par value, outstanding trading at $10 per share. In addition, it has 50,000 bonds with a coupon rate of 8% trading at 98% of face value of $1000. The bonds yield a rate of return of 9%. The beta for equity is 1.2. The risk-free rate is 2.5%. The current market risk premium is 5%. The tax rate is 25%....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT