18. Adjusted WACC. Thorpe and Company is currently an all-equity firm. It has th
ID: 2701548 • Letter: 1
Question
18. Adjusted WACC. Thorpe and Company is currently an all-equity firm. It has three million shares selling for $25 per share. Its beta is 1.1, and the current risk-free rate is 2.1%. The expected return on the market for the coming year is 9.3%. Thorpe will sell corporate bonds for 25,000,000 and retire common stock with the proceeds. The bonds are twenty-year semiannual bonds with a 7.8% coupon rate and $1,000 par value. The bonds are currently selling for $970.53 per bond. When the bonds sell, the company%u2019s beta will increase to 1.5. What was Thorpe and Company%u2019s WACC before the bond sale? What is Thorpe and Company%u2019s adjusted WACC after bond sale if the corporate tax rate is 40%? Hint: The weight of equity before selling the bonds is 100% NOTE: show all work
22. Beta of a project. Vespucci is adding a project to the company portfolio and has the following information: the expected market return is 16.5%, the risk-free rate is 3.7%, and the expected return on the new project is 14.6%. What is the project%u2019s beta? NOTE: Show all work
Explanation / Answer
answer of 22 is very easy you can find it by using capital asset pricing modedl.CAPM
which is
cost of equity = risk free rate + beta (return on project )
16.5 = 3.7 +beta (14.6)
beta =12.8/14.6
beta = 0.876
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