Should usr undertake the project

Assignment Help Financial Management

Reference no: EM131337269

U.S. Robotics (USR) has a current (and target) capital structure of 70 percent common equity and 30 percent debt. The beta for USR is 1.4. USR is evaluating an investment in a totally new line of business. The new investment has an expected internal rate of return of 15 percent.

USR wishes to evaluate this investment proposal. If the investment is made, USR intends to finance the project with the same capital structure as its current business. USR's marginal tax rate is 34 percent. USR has identified three firms that are primarily in the line of business into which USR proposes expanding.

Their average beta is 1.7, and their average capital structure is 40 percent common equity and 60 percent debt. The marginal tax rate for these three firms averages 40 percent. The risk-free rate is 8 percent, and the expected market risk premium is 8.3 percent. Should USR undertake the project?

Reference no: EM131337269

Questions Cloud

Very brief description of the business : As an introduction to your report, identify the business and provide a very brief description of the business.

What is probability that project will have a negative npv : The most pessimistic estimate represents a value that the project's NPV is not expected to fall below more than 10 percent of the time. What is the probability that this project will have a negative NPV?

Inappropriate manner with the minority shareholders : 1. If a company wants to sue, what appropriate statutory remedy is available? Explain with relation to authority. 2. Is there any equitable limitation for majority shareholders acting in an inappropriate manner with the minority shareholders?

Create a comprehensive plan of care for acute-chronic care : You have been provided with case studies that focused on genitourinary and musculoskeletal disorders. You will pick one of these cases to analyze and create a comprehensive plan of care for acute/chronic care, disease prevention, and health promot..

Should usr undertake the project : The risk-free rate is 8 percent, and the expected market risk premium is 8.3 percent. Should USR undertake the project?

Newly hired researcher trainee at georgia metro research : You have just graduated from college and are a newly hired researcher trainee at Georgia Metro Research. You have been asked to determine the appropriate research design for two new clients, as follows.

Explain fundamental concerns that a nonprofit should examine : The significant pros and cons of such government contracting discussed by Zadi, et al. Further explain the fundamental concerns that a nonprofit should examine if it is considering engaging in governmental contracting and why.

What is projects npv using the risk adjusted discount rate : What is the project's NPV, using the company's weighted cost of capital?- What is the project's NPV, using the risk-adjusted discount rate?

Estimate the surface temperature of the cable : A horizontal electrical cable of 25-mm diameter has a heat dissipation rate of 30 W/m. If the ambient air temperature is 27°C, estimate the surface temperature of the cable.

User Account

All Pages