Question 20 of 20 For this problem, all M&M with taxes (40%) assumptions apply. After a successful college football career, Tim Turbo partnered with Danny Waffle (naming themselves TD industries) to manufacture and distribute fruit pies. On 1/1/2020, the company had one product that generated EBIT of $150,000 on 12/31 of each year (forever), with an asset beta of 1.20. The firm faced a tax rate of 40 percent, and the firm had no debt outstanding. At that time, the risk-free rate, RF, was 3 percent and the MRP was 6 percent. The firm had 75,000 shares outstanding, and all earnings were (and will always be) paid out as dividends. On 1/2/2020 at 8:00 a.m., TD announced a new pie product: The project required that the company spend $750,000 to purchase The Buckeye Grinder 2500, a buckeye mashing machine. For tax purposes, the machine will not be depreciated since it will last forever. No working capital is required. To fund the project, all $750,000 was raised as perpetual debt, with an annual coupon rate equal to the risk-free rate, and interest paid annually. The project increased the company's EBIT by $350,000 a year forever (starting on 12/31/2020). The project had an asset beta of 1.45. When the market opened at 9:30 a.m., the price / share fully adjusted to the announcement. The debt was then issued, and the project was implemented. What was the equity beta when the entire transaction was complete? Answer truncating your answers to 3 decimal places. For example, if your answer is 1.7825. enter "1.783" Answer given X 2.449 Accepted answers: 1.644 1.645 1.646 1.643 1.642 Question 20 of 20 For this problem, all M&M with taxes (40%) assumptions apply. After a successful college football career, Tim Turbo partnered with Danny Waffle (naming themselves TD industries) to manufacture and distribute fruit pies. On 1/1/2020, the company had one product that generated EBIT of $150,000 on 12/31 of each year (forever), with an asset beta of 1.20. The firm faced a tax rate of 40 percent, and the firm had no debt outstanding. At that time, the risk-free rate, RF, was 3 percent and the MRP was 6 percent. The firm had 75,000 shares outstanding, and all earnings were (and will always be) paid out as dividends. On 1/2/2020 at 8:00 a.m., TD announced a new pie product: The project required that the company spend $750,000 to purchase The Buckeye Grinder 2500, a buckeye mashing machine. For tax purposes, the machine will not be depreciated since it will last forever. No working capital is required. To fund the project, all $750,000 was raised as perpetual debt, with an annual coupon rate equal to the risk-free rate, and interest paid annually. The project increased the company's EBIT by $350,000 a year forever (starting on 12/31/2020). The project had an asset beta of 1.45. When the market opened at 9:30 a.m., the price / share fully adjusted to the announcement. The debt was then issued, and the project was implemented. What was the equity beta when the entire transaction was complete? Answer truncating your answers to 3 decimal places. For example, if your answer is 1.7825. enter "1.783" Answer given X 2.449 Accepted answers: 1.644 1.645 1.646 1.643 1.642
