Question
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$4.00 corporate risk, beta and WACC
- From Business: General-Business , Economics: General-Economics
- Closed, but you can still post tutorials
- Due on Jan. 02, 2008
- Asked on Dec 20, 2007 at 3:10:09PM
Q:Two questions on corporate risk beta and WACC, based on the following information:
A firm has a beta coefficient of 1.2 and a WACC of 14.6%. A new project's beta is measured at 1.6; this project will require utilization of 25% of the firm's equity. The firm's capital structure is maintained at 40% debt, 60% equity, and its current cost of equity is 16%; the risk-free market rate is 8% and the current expected market return is 14.67%.
1. The firm has a new corporate risk beta of:
a. 1.20
b. 1.30
c. 1.36
d. 2.10
2. Which of the following is true?
a. the firm's WACC will remain unchanged
b. the firm's cost of debt will increase by 1%
c. the firm's cost of common equity will increase by .67%.
d. the firm's WACC will decrease by .67%
e. none of the above
