What discount rate should it use

Assignment Help Finance Basics
Reference no: EM132185098

  1. The LoLev Corporation's equity has a beta of 1.4. Its debt has a beta of 0.2. Its ratio of debt to equity is 0.3. The HiLev Corporation's equity has a beta of 2. Its debt has a beta of zero. HiLev's ratio of debt to equity is 0.5. The riskfree rate is 8%, and the expected return on the market portfolio is 19%. Assuming the CAPM holds, and that there are no taxes or costs of financial distress, answer the following:
  2. LoLev is thinking of investing in the same line of business that HiLev is engaged in. What discount rate should it use?
  3. Now suppose the LoLev Corporation has decided to invest in HiLev's line of business. These projects now constitute 10% of the overall value of the LoLev's Corporation. Given that its debt/equity ratio and the beta of its debt remain unchanged, calculate the new value of LoLev's equity beta.

Reference no: EM132185098

What is the project''s discounted payback period

Roswell Energy Company is installing new equipment at a cost of $10 million. Expected cash flows from this project over the next five years will be $1,045,000, $2,550,000, $

Which of the following statements are correct

Which of the following statements are correct? If inflation is expected to increase in the future, and if the maturity risk premium is greater than zero, then the yield curve

The mean number of strings per list

When n strings are hashed into m lists. the mean number of strings per list is n I m, no matter how unevenly the strings are distributed. Suppose that d is a "distribution,"

Identify the illegal practice in which the agent engaged

Opal, age 75, has a $100,000 ordinary life insurance policy that has a cash value of $35,000. Opal is concerned about the cost of long-term care in a nursing home. A new age

What can be done to improve these products

Despite the attention paid to quality management, many products still do not meet acceptable standards. Give some examples of products that you think are unsatisfactory. Why

Cash reconciliation

The bank recorded a deposit of $200 as $2,000.The Company's bookkeeper mistakenly recorded a payment of $250 received from a customer as $25 on the bank deposit slip.

Decides to use a range forward contract

The USD/euro exchange rate is 1.3000. The exchange rate volatility is 15%. A US company will have to pay 1 million euros in three months. The euro and USD risk-free rates ar

Explain roles of limited liability partnerships

I have to prepare a paper in which I describe the roles of limited liability partnerships and corporations. If you were establishing your own business, under what situations w

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd