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Calculate the expected return

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Q1. Cool ridge Water Ltd is considering investing in a new source of water that will cost $5000000. Cool ridge can get debt funding for new project. Currently Cool ridge has $4000000in debt funding and 16,000000in equity funding. The cost of debt is currently 6% and the cost of equity in currently 9%. After the new project the cost of debt will rise to 5.6% and the cost of equity will rise to 10%. Has shareholder wealth changed?

Q2. Answer the following questions:

a) Calculate the expected return for the following companies if the expected return on Government bonds is 10% and the expected return on the market portfolio is 18%.

Beta Co-efficient

Company B 1.1

Company C 0.8

b) Why are the returns obtained by these companies different?

Reference no: EM132640322

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