Adjusted discount rate of scale changing

Assignment Help Basic Computer Science
Reference no: EM132271997

Consider a corporation that currently has debt of $200 million and equity of $300 million. The beta of its debt is 0.4 and beta of its equity is 1.6. Suppose currently risk free rate of interest is 3% per annum, and the expected rate of return on the market portfolio is 9% per annum. Assuming that the capital asset pricing is valid, find the risk adjusted discount rate of scale changing capital projects of the corporation.

Secondly, assume now that the corporation raises additional equity funds of $100 million and uses these funds to pay down its outstanding debt. As a consequence, the beta of its debt declines to 0.2. Find the beta of its equity, the required expected rate of return on its equity and the risk-adjusted discount rate.

Reference no: EM132271997

Questions Cloud

Consider two mutually exclusive machines : Consider two mutually exclusive machines: A and B. Acquisition cost of A is $1,000 and of that of B is $1,800. Assume that both machines produce identical
Elaborate on a scenario when it would be acceptable to use : Elaborate on a scenario when it would be acceptable to use the "wait and see" approach to manage risk.
Calculate the rate of return on firm assets : At the output level of 5,000 units, calculate the rate of return on firm's assets, the degree of its operating leverage, earnings per share, the rate of return
Develop your action plan to evaluate this data incident : ISOL631 - Develop your action plan to evaluate this data incident. Describe how the Incident Response Policy supported your actions.
Adjusted discount rate of scale changing : Assuming that the capital asset pricing is valid, find the risk adjusted discount rate of scale changing capital projects of the corporation.
Annual inflation rates of the united states and japan : What would you estimate is the difference between the annual inflation rates of the United States and Japan
What is state flag unlevered beta : State Flag Co.has a beta of 1.40. The tax rate is 40%, and State Flag is financed with 40% Debt. What is State Flag's unlevered beta?
Which remote authentication offers the best protection : Which remote authentication offers the best protection? and why?
Calculate the amount of interest : Calculate the amount of interest and, separately, principal paid on each mortgage. What is the difference in interest paid?

Reviews

Write a Review

Basic Computer Science Questions & Answers

  How business intelligence do bigger roles in corporate

How business intelligence do bigger roles in corporate plannings? Describe the sizes, scoping, and time of the business Be sure to defining the corporate

  Cloud computing

Many organizations have now adopted or begun to offer cloud computing. This type of computing has advantages and disadvantages that may vary from organization to organization.

  Calculate the temperature difference

Calculate the temperature difference across a (100) silicon wafer necessary for the silicon to reach its yield strength.

  What is one benefit of eating a lunch rich in vitamin d

What is one benefit of eating a lunch rich in Vitamin D? What can do to ensure getting the daily recommended intake of Vitamin D?

  Research types of operating systems

Research types of operating systems that are currently available and provide a scenario in which the operating system you chose would be appropriate

  K and l are mobile across sectors.

The next three questions pertain to the two-good (M,F)-two-factor (K-L) Harberger model.Unless noted otherwise, assume that each factor of production is always fully employed, allmarkets are competitive, and K and L are mobile across sectors.

  Major determinants of price elasticity of demand

What are the major determinants of price elasticity of demand? Use these determinants in judging whether demand

  Ease of maintainece trade off

One thing to keep in mind is that databases are easier to maintain in third normal form, but this poses some unique challenges in that the data is now contained

  Breakthrough events in the evolution of elearning

What are some breakthrough events in the evolution of elearning?

  Several marketing and advertising strategies

Unit VI includes several marketing and advertising strategies that many companies have used to strengthen their brands.

  What is the expected value of the stock price

The current price of a stock is $50. Suppose the following distribution describes the possible prices that the stock will be in 1 year: the probability

  Selecting the appropriate candidate for a job

What would be examples of valid selection methods used by the human resource department to ensure selecting the appropriate candidate for a job.

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