1. Suppose you are working as a financial analyst for Tesla.Elon Musk has asked you to determine the systematic operating risk (that's a particular type of beta) of adding a new beverage-making-technology to the company's line of vehicles. Of course, Tesla has no experience in this specific area (beverage-making-technology). You remember your finance course and look around for pure plays. You decide on WalterCola as the closest pure play. WalterCola's beta (from Yahoo!Finance) is 1.28 and that company has a D/E ratio of 0.28, and a tax rate of 0.17. What is the (numerical value of the) systematic operating risk of the project that Elon Musk has asked you ascertain? Answer should include four digits to the right of the decimal point.
2. Assume your calculated asset beta for the project (beverage-making-technology to be included in Tesla vehicles) is 0.62. Now Elon Musk has asked you to determine the required return on the equity that the firm plans to issue to PARTIALLY finance the project. The project itself will be financed with half debt and half equity. You also look up the risk-free rate and it currently equals 1.8%; and youdetermine that the accepted market risk premium (these days) is 4.5%. Tesla's company tax rate is 20% What is the refor the project? Answer should include four digits to the right of the decimal point.