Crystal Company just reported a net income of $20 million; its plowback ratio is 70 percent for the next period; and the firm has 8 million units of common shares outstanding. Currently, its stock is traded at $8 per share. The company expects its earnings (and therefore its dividends) to continue to grow at its historical rate of 6 percent per year for the indefinite future. The current risk free rate is 3 percent and the expected return on the market portfolio is 16 percent. Crystal's long-term debt consists of 20,000 units of bonds, with a current market Page 4 of 5 value $18 million. The $1,000 par value bonds have a coupon rate of 10% and will mature in 25 years. Coupons are paid semi-annually. Crystal's tax rate is 35 percent. Crystal Company is evaluating a project which is expected to generate $3 million pre-tax cash flows annually for 15 years. The initial cost for the project is $12 million. Apart from the initial cost, the firm also has to spend $100,000 every 6 months to maintain the equipment associated with the project. The maintenance cost is treated as an expense and will never be returned to the company. When the project terminates, the used equipment can be sold for $1 million. You may ignore the impact on taxes for the sale of the equipment.

Required:

a) Can we estimate the Beta of Crystal Company? If yes, please show the process and state your estimation; if no, please explain why.(4 marks)

b) What does Beta stand for? What is the Beta for the whole market and for Treasury Bill respectively? (2 marks)