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Droz's Hiking Gear, Inc. has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent
Droz's Hiking Gear, Inc. has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent and the expected return on the market is 14 percent. It has 7-year semiannual maturity bonds outstanding with a Question price of $767.03 that have a coupon rate of 7 percent. The firm is financed with 18-22 $140,000,000 of common shares (market value) and $60,000,000 of debt. Droz's, is subject to a 35 percent marginal tax rate. The management of Droz's, is considering an expansion project that costs $1.2 million. The project will produce a cash inflow of $600,000 for 5 years. What is the fraction of each securities? (Round to the two decimal places.) A) Xdebt = 0.7, Xcs = 0.3 B) Ldebt = 0.4, Xcs = 0.6 C) X debt = 0.3, Xcs = 0.7 D) Xdebt = 0.6 , Xcs = 0.4
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