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could you help me soleve the finance management problem You are trying to get an estimate for the WACC of a firm X that has

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could you help me soleve the finance management problem

You are trying to get an estimate for the WACC of a firm X that has two divisions, one is in steel and the other is in construction. The construction division has a value (market value) of $400m and steel division has a value of $600m. You identify firms that have investments in these industries and obtain the following information about the beta of the two divisions. You are also given the following information: The tax rate is 40%. The cost of debt financing (and the risk-free rate) is roughly 5%. The market premium E(R_M) - R_F = 8%; The beta of debt is zero and hence: beta_Asset = D/D + E beta_E (a) What is the expected beta_Asset of firm X, given the above estimated beta s for its two divisions? Now assume that X is expected to have leverage D/D + E= 1/3. What is your estimate of beta_E of firm X's equity and what is the required rate of return of the equity? What is the WACC for firm X (maintaining the 1/3 leverage assumption from (b) above)

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