6215:corporate Financial Management Homework

Essay by   •  November 25, 2015  •  Course Note  •  334 Words (2 Pages)  •  1,204 Views

Essay Preview: 6215:corporate Financial Management Homework

Report this essay
Page 1 of 2

6215:Corporate Financial Management                                                                                  Vinay. Kolla

Home Work 6        ht8453

Question 1

Part a:

IRR for project A

[pic 1]

IRR for project B

[pic 2]

We should choose project B because the internal rate of return is higher than IRR for project A.

Part b:

NPV for project A

[pic 3]

NPV for project B

[pic 4]

Based on the NPV values we have to select project A as it has a higher net present value.

Question 2

Part a:

Unlevered Beta= Levered Beta/[1+(1-0.35)*D/E]

=0.9/[1+(1-0.35)*0.0758]

=0.857

For MSFT

Unlevered Beta= Levered Beta/[1+(1-0.35)*D/E]

=0.69/[1+(1-0.35)*0.2789]

=0.584

Part b:

Unleveraged Beta (Industry’s Asstes Beta)=(0.857+0.584)/2

=0.72

Levered Beta= Unlevered Beta*[1+(1-0.35)0.25]

=0.75*[1+(1-0.35)*0.25]

=0.87

Hence the leverage beta for the new firm will be 0.87

Question 3

Part a:

Re =Rf  + Bleveraged (Rm -Rf)

=0.0814

WACC=D/(D+E) *Rd *(1-tc)+E/(D+E)Re

=0.0763

Part b:

...

...