7.1. Hamlin Pharmaceuticals has $10 million in debt and $70 million in equity. I

Question

7.1. Hamlin Pharmaceuticals has $10 million in debt and $70 million in equity. Its tax rate is 35%, cost of debt 6%, and beta 1.5. The riskless rate is 3% and the expected return on the market 13%. Hamlin would like to start a newspaper using its existing capital. Crissinger Times is a daily newspaper. Crissinger has $14 million in debt and $45 million in equity, with tax rate of 33% and beta 1.6. Find the required rate of return for Hamlin in the new venture.

Answer: 15.77% Please show solutions.

Explanation / Answer

7.1. Hamlin Pharmaceuticals has $10 million in debt and $70 million in equity. I

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