Financing/Investing - Beta Value
Not what you're looking for?
The TT Company is planning to put a manufacturing facility in place to build telescopes. The systematic risk of this project alone is 25% greater than those currently manage. The company has a capital structure in which 35% of the firm value is debt on which they pay 14% interest. The beta of its equity is currently .8 and the company faces a 36% tax rate. The initial investment cost is $4,200,000 and the expected cash flows after tax are $1,200,000 per year for 6 years. The manufacturing assets in question fall into CCA class 43 (30% CCA rate), assume that there is the 1 first year rule and ignore the value that is left in the 2 UCC pool at the end of the project. Lastly, TT will need an investment of $100,000 for inventory and another $100,000 to finance accounts receivable.
If the risk-free rate is 5% and you believe a historical market risk premium of 8.5% is a reasonable estimate, would you recommend TT to undertake this project?
Purchase this Solution
Solution Summary
This solution explores financial concepts such as the beta value.
Education
- MBA, Indian Institute of Finance
- Bsc, Madras University
Recent Feedback
- "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
- "thank you!"
- "Thank you again Jayant. You are super fast. "
- "Thank you Jayant. You are appreciated. "
- "Again, thank you Jayant. You are wonderful. "
Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Income Streams
In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.
Motivation
This tests some key elements of major motivation theories.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.