A firm has four divisions: the beta for the laundry services division is 0.4, the beta for the

custom irrigation division is 0.9, the beta for the clown rental division is 1.3, and the beta

for the handheld thermonuclear division is 2.3. Each division is r

oughly the same size.

What is the companys overall beta? If the company is considering a new

aquaculture

project, what should the equity opportunity cost be? Assume the risk

-

free rate is 4% and

the market return is expected to be 13%.

2.

A firm with $162 pe

r share price and 200k shares outstanding does a 4 for 3 stock split.

What will the new price per share be following the stock split?

3.

An all equity company has a book value equal to its market value, with $43k in cash and

$67k in other assets. The firm ha

s 7.5k shares outstanding and net income of $2k. If the

firm uses its cash to complete a stock repurchase, what with the new EPS be? If the firm

used its cash to pay a $5.73 dividend, what would the new stock price be?

4.

You have the following data for Year

1. Find the Free Cash Flow for Year 1 (FCF1).

Year 1

Year 0

Profit after Tax

15.0

1

4.5

Depreciation

1

2.0

1

2.0

Interest expens

e

4.5

5.5

Gross Fixed Assets

1

6.5

13

.0

Net Working Capital

7

.5

8.3

5.

Your company is evaluating a

purchase of Skeksis Crystal Mining LLC. Skekis produced

free cash flow of $7.3m last year, and this is expected to grow at 11% for the next five

years before leveling off to a long term growth rate of 2%. Your company has a cost of

capital of 10%, while Sk

eksis has a cost of capital of 13%. Skeksis has 3 million shares

outstanding and $25m in debt. What would be the highest price you would pay per share

of Skeksis stock?

6.

Charge

-

On Electrical Services is considering a project that will save the company $3.

5m

at the end of the first year, with the cost savings growing at 3% per year indefinitely. The

firm has a D/E ratio of .55. The firms beta is 1.2, with a risk free rate of 2% and a market

risk premium of 8%. The firms bonds have 25 years remaining, pay

a 5% semiannual

coupon, and trade at 106% of par value, which is $1,000.

The corporate tax rate is 40%.

How much is the project worth to the company?