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Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all - equity firm that specializes in this business. Suppose
Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an allequity firm that specializes in this business. Suppose Harburtins equity beta is the riskfree rate is and the market risk premium is Part a If your firm's project is allequity financed, estimate its cost of capital. Harburtins cost of capital is enter your response here Round to two decimal places. Part b Thurbinars unlevered beta is Round to two decimal places. Part Thurbinars unlevered cost of capital is Round to two decimal places. Part c Estimate Thurbinars equity cost of capital using the CAPM. Then assume its debt cost of capital equals its yield and using these results, estimate Thurbinars unlevered cost of capital. Thurbinars equity cost of capital is Round to two decimal places. Part Thurbinars unlevered cost of capital is Round to two decimal places. Part d Explain the difference between your estimate in part b and part cSelect the best choice below. A In the first case, we assumed the debt had a beta of so we assumed the cost of debt was the riskless rate, while in the second case, we assumed the cost of debt was the yield on debt. BThe answers differ because we are using approximations rather than formulas that hold exactly. CThe answers are actually the same; any difference is just due to rounding errors. DWe should have gotten the same answer, the problem is the numbers in the problem are not consistent. Part e You decide to average your results in part b and part c and then average this result with your estimate from part a What is your estimate for the cost of capital of your firm's project? The average unlevered cost of capital from part b and part c is Round to two decimal places. Part The average unlevered cost of capital from part b and part c with part a is Round to two decimal places.
Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an allequity firm that specializes in this business. Suppose Harburtins equity beta is the riskfree rate is and the market risk premium is
Part
a If your firm's project is allequity financed, estimate its cost of capital. Harburtins cost of capital is
enter your response here Round to two decimal places.
Part
b Thurbinars unlevered beta is Round to two decimal places.
Part
Thurbinars unlevered cost of capital is Round to two decimal places.
Part
c Estimate Thurbinars equity cost of capital using the CAPM. Then assume its debt cost of capital equals its yield and using these results, estimate Thurbinars unlevered cost of capital.
Thurbinars equity cost of capital is Round to two decimal places.
Part
Thurbinars unlevered cost of capital is Round to two decimal places.
Part
d Explain the difference between your estimate in part b and part cSelect the best choice below.
A In the first case, we assumed the debt had a beta of so we assumed the cost of debt was the riskless rate, while in the second case, we assumed the cost of debt was the yield on debt.
BThe answers differ because we are using approximations rather than formulas that hold exactly.
CThe answers are actually the same; any difference is just due to rounding errors.
DWe should have gotten the same answer, the problem is the numbers in the problem are not consistent.
Part
e You decide to average your results in part b and part c and then average this result with your estimate from part a What is your estimate for the cost of capital of your firm's project?
The average unlevered cost of capital from part b and part c is Round to two decimal places.
Part
The average unlevered cost of capital from part b and part c with part a is Round to two decimal places.
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