The total market value of Muskoka Real Estate Company is $6 million and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock is currently 1.5 and that the expected risk premium on the market is 7% and the Treasury bill rate is 4%.

a.What is the required rate of return on Muskoka Stock?

b. What is the beta of the companys existing portfofolio of assets? The debt is perceived to be virtually risk free.

c. Estimate the weighted-average cost of capital assuming a tax rate of 40%

d.Estimate the discount rate for an expansion of the companys present business

e.Suppose the company wants to diversify into the manufacture of rose-coloured glasses. The beta of optical manufacturers with no debt outstanding is 1.2. What is the required rate of return on Muskokas new venture?