Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 12, Problem 18P

Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin’s equity beta is 0.85, the risk-free rate is 4%, and the market risk premium is 5%. If your firm’s project is all equity financed, estimate its cost of capital.

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Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.81, the risk-free rate is 4.1%, and the market risk premium is 5.4%. If your firm's project is all-equity financed, estimate its cost of capital.
Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity beta is 0.77, the risk-free rate is 3%, and the market risk premium is 4%. a. If your firm's project is all-equity financed, estimate its cost of capital. After computing the project's cost of capital, you decided to look for other comparables to reduce estimation error in your cost of capital estimate. You find a second firm, Thurbinar Design, which is also engaged in a similar line of business. Thurbinar has a stock price of $19 per share, with 16 million shares outstanding. It also has $114 million in outstanding debt, with a yield on the debt of 4.8%. Thurbinar's equity beta is 1. b. Assume Thurbinar's debt has a beta of 0. Estimate Thurbinar's unlevered beta. Use the unlevered beta and the CAPM to estimate Thurbinar's unlevered cost of capital. c. Estimate Thurbinar's equity cost of capital using the CAPM. Then…
Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an​ all-equity firm that specializes in this business. Suppose​ Harburtin's equity beta is 0.83​, the​ risk-free rate is 5%​, and the market risk premium is 5%.   a. If your​ firm's project is​ all-equity financed, estimate its cost of capital. After computing the​ project's cost of capital you decided to look for other comparables to reduce estimation error in your cost of capital estimate. You find a second​ firm, Thurbinar​ Design, which is also engaged in a similar line of business. Thurbinar has a stock price of $24 per​ share, with 15 million shares outstanding. It also has $104 million in outstanding​ debt, with a yield on the debt of 4.8%. ​Thurbinar's equity beta is 1.00.   b. Assume​ Thurbinar's debt has a beta of zero. Estimate​ Thurbinar's unlevered beta. Use the unlevered beta and the CAPM to estimate​ Thurbinar's unlevered cost of capital.   c. Estimate​ Thurbinar's equity cost of…

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Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book

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