The beta of a security equals the covariance of the security with the market divided by the variance of the market. Describe how the two parts are calculated. What does beta measure? JW Technologies, Inc. $($JWT$)$ is a $5-$year$-$old public company founded to develop new battery technology for various electronic devices. The company plans to license the technology and does not plan to invest in manufacturing facilities. The company has previously issued common shares and one bond issue to fund its activities.

The bonds have a remaining term of $20-$years, a $10\%$ semiannual coupon with a face $($par$)$ value of $$1,000.$ The bond may be called in $5$ years at a call price of $$1,050$ and currently sells for $$1,100.$

The stock currently sells for $$50/$share$.$ The expected market return is $15\%$ and the risk$-$free rate is $3\%.$ The JWT stock$$s beta is $1\mathrm{.}2.$

The company is considering a project to build a prototype machine using existing funds. The machine costs $$90,000$ and has delivery and installation costs of $$10,000.$ The company will fully use a building which it currently subleases for $$20,000.$ The company$$s lease obligation ends at the end of the project period.

Having the machine will increase royalties received by $$120,000$ per year for five years. Incremental expenses for the sales are $$25,000$ plus depreciation. The machine will be depreciated over five years and has a useful life of five years. The tax rate for JWT is $34\%.$

The current market value of debt is $$1,000,000$ and the current market value of equity is $$1,400,000.$ The ratio is similar to the long$-$term targeted mix of capital.The ratio is similar to the long$-$term targeted mix of capital.