c) suppose Zenos Manufacturing is contemplating investing in a new business. An existing company in the target industry has an equity beta of 0.90 but is very conservatively financed with a market value, equity-to-value ratio 95%. Zenos intends to use an equity-to-value ratio of 30%. What beta should Zeno use in estimating a cost of capital in the new business.
c) suppose Zenos Manufacturing is contemplating investing in a new business. An existing company in the target industry has an equity beta of 0.90 but is very conservatively financed with a market value, equity-to-value ratio 95%. Zenos intends to use an equity-to-value ratio of 30%. What beta should Zeno use in estimating a cost of capital in the new business.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- c) suppose Zenos Manufacturing is contemplating investing in a new business. An existing company in the target industry has an equity beta of 0.90 but is very conservatively financed with a market value, equity-to-value ratio 95%. Zenos intends to use an equity-to-value ratio of 30%. What beta should Zeno use in estimating a cost of capital in the new business.
- d) State a reason that the
cost of external equity is greater than the cost of internal equity?
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