Suppose you are evaluating a project that involves manufacturing solar-powered electric hand tools for the Asian market. You have decided to use the comparison firm method to try to come up with an appropriate cost of capital for the project, and have identified the following potential comparison firms. (I) FixIt - an American firm that manufactures all types of tools and sells them globally. FixIt's product lines include ordinary hand tools, electric tools with power cord options for North American 110-volt electrical supply and European/Asian 220-volt supply. Although FixIt experimented with radium-powered tools in the 1980s, sales were poor, and this product line was discontinued. FixIt's CEO until 2011 was a wellknown opponent of solar energy, believing it part of a global conspiracy to bring the United States under the sovereignty of the UN and impose socialism and the metric system on the country. The new CEO is more open to the idea of solar-powered tools, but remains unconvinced that the market is sufficiently large to justify the substantial development costs, and has no plans to introduce such products as of 2021. (II) SelbstGemacht-a German firm that engages primarily in the manufacture and distribution of solarpowered hand tools for the European and South American markets. Founded as a small home-based business in Bremen in 1948, SelbstGemacht began to market solar-powered tools in France, the UK, Spain, Poland, and Italy during the 1960s, and by the 1990 s had a presence in every major western and central European country, and also in Brazil, Argentina, Venezuela, Peru, Chile, Russia, Czechia, Slovakia, and several Balkan countries. (III) ISC (International Sun Corporation) - a Chinese firm founded in 1997, which operates in almost all Asian countries. ISC manufactures solar-powered hand tools (which account for 11% of the firm's sales and 13% of its profits), solar-powered automobiles, golf carts, buses, water heaters, televisions, kitchen appliances, computers, and radios. An effort to introduce solar-powered small aeroplanes in 2014 was abandoned when all of the prototypes crashed. ISC commands either first or second place in terms of market share in every country and every market segment in which it operates, except for solar-powered golf carts in Laos, where it ranks third. (a). Which firm(s), if any, would be good comparison firms for your project? Suppose you have gathered information on the capital structure of the three firms, and estimated the beta coefficients of their debt and equity securities. 1(b). What is the beta coefficient of the firm's assets, for each of the three firms? (Provide an answer for each of the three, whether or not you feel they are good comparison firms.) I(c). Suppose the market risk premium is 8.4%, and the risk-free rate is 2%. What discount rate would you apply to the cash flows of your project? Explain how you reach this conclusion
