6215:corporate Financial Management Homework
Essay by sda111 • November 25, 2015 • Course Note • 334 Words (2 Pages) • 1,242 Views
6215:Corporate Financial Management Vinay. Kolla
Home Work 6 ht8453
Question 1
Part a:
IRR for project A
[pic 1]
IRR for project B
[pic 2]
We should choose project B because the internal rate of return is higher than IRR for project A.
Part b:
NPV for project A
[pic 3]
NPV for project B
[pic 4]
Based on the NPV values we have to select project A as it has a higher net present value.
Question 2
Part a:
For google
Unlevered Beta= Levered Beta/[1+(1-0.35)*D/E]
=0.9/[1+(1-0.35)*0.0758]
=0.857
For MSFT
Unlevered Beta= Levered Beta/[1+(1-0.35)*D/E]
=0.69/[1+(1-0.35)*0.2789]
=0.584
Part b:
Unleveraged Beta (Industry’s Asstes Beta)=(0.857+0.584)/2
=0.72
Levered Beta= Unlevered Beta*[1+(1-0.35)0.25]
=0.75*[1+(1-0.35)*0.25]
=0.87
Hence the leverage beta for the new firm will be 0.87
Question 3
Part a:
Re =Rf + Bleveraged (Rm -Rf)
=0.0814
WACC=D/(D+E) *Rd *(1-tc)+E/(D+E)Re
=0.0763
Part b:
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