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Company A has a debt of $25,000,000 while its equity is $115,000,000. The beta of A's levered equity is 0.95 and the company keeps a constant debt-to- equity ratio. Company A's cost of debt is 4.35% and it bears no systematic risk. The expected return of the market portfolio is 9%. In the near future Company B is starting a new project with a life of 5 years, with asset similar to the assets of Company A. Company B will need to acquire new fixed assets for $12,450,000 in order to start the project. These assets will be depreciated straight-line through the life of the project. The CFO of the company has chosen to raise 1/3 of the necessary funds for the new project as debt, and 2/3 as equity. Moreover the debt level for the project will be kept constant through its life, and it bears no systematic risk. The corporate tax rate is 24%.
(a) What is the unlevered return on equity of the new project of Company B?
Your brother has asked you to help him with choosing an investment. He has 6,700 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 0.0500 annually with the interest being paid quarterly. What will be the ..
question 1we have a first to default derivative written on two obligors a and b. the survival probabilities are
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