Which project should X invest in? And what will its new cost of equity be?

X is an all equity financed firm with a market value of 拢21m and a beta of 1.1. X is presently considering opportunities. Project A and project B, both which require investment of 拢5m. With respect to both of these projects the returns will be received in perpetuity.

A
beta = 0.7
expected return net of corporation tax = 16%.

B
beta = 0.4
expected return net of corporation tax = 11%.

Financing of the project will be obtained by raising new risk free debt.

Return on the market portfolio is given as 18% and return on the risk free security = 8%. Assume that the capital market is in equilibrium. Corporation tax = 35%.

man - if you can find that deal anywhere - count me in for 拢5 million

Tags

　　Earn Money 　　Direct Investment 　　Debt Financing 　　Capital Investment 　　Business Investment 　　Business financing 　　Business Invest 　　Business Debt

Related information

Tax question: My girls recieved stock as a gift, some was reinvested, some cashed out, is all of it taxed?

As a rule, it is only what was cashed out. You give very few details. If they inherited the stocks, they will inherit the stock at the price on the date of the donor's death (as a general ru...

Reserve Bank of India Mid-term Review of Annual Policy for 2006-2007?

ASK SOMEONE OVER THERE IN INDIA !!!

...

I have an incredible internet site idea, where would I start to find investors.?

You may want to go and pitch your ideas where investors gather. Here are some places where angel investors come and those looking for funding can come and pitch their business plans. Be sure to hav...

How can I bring partner for the mica mine which Iown its licience,bearing inmind that Ive no liquidity?

You should call them and get all of the details. Better have all of the information be factual when it come to that.

...

Can I deduct this?

There are way too many potential issues here to give you a cut and dried answer. I'd strongly urge a consultation with a CPA or tax attorney.

...

Help please, i'm so confused?

Trying to get someone to do your homework for you? You really need to crack the books and work this problem out for yourself. It isn't difficult, but why go to school if you're going to t...

Is selling stradle option on SPDR exchange traded fund(SPY) a good strategy?

Sounds to me like you are a little more advanced than the teenagers on this site! I can not give you advice ... can you give me some? Why not stocks? I am into [GW] Grey Wolf and [GE] General Elec...

A question on WACC?

Now I remember why I gave up accountancy just after qualifying in 1974. I beleive you could do a lot worse than purchase a copy of "Financial Modeling using Excel and VBA. (www.amazon.co.uk...