The closest pure-play firm for the proposed PSY division

Assignment Help Operation Management

Reference no: EM13956199

Gangnam Corp is a South Korea-based music entertainment company, but is interested in launching a new line of clothes and sunglasses under the brand name PSY in hopes of becoming an international phenomenon. They have surveyed the clothing industry and have identified Style Inc. as the closest pure-play firm for the proposed PSY division.

Gangnam Corp has a beta of 1.45 and is 55% equity-financed. Style Inc. has an equity beta of 1.22 and a debt-equity ratio of 2.75. The risk-free rate of return is 1.3 percent and the market risk premium is 9.4 percent.

What cost of equity should Gangnam Corp use for its PSY apparel division? Assume taxes are 34% and that Gangnam Corp will maintain its current capital structure for its new apparel division.

Reference no: EM13956199

Questions Cloud

What would the cash option payout be : The cash option amount is determined by discounting the winning amount at 7% over 20 years. This week the lottery is worth $6 million to a single winner. What would the cash option payout be?

Determine the? p-value for this test : Consider the hypotheses shown below. Given that x overbar = 113, σ=25?, n=48, α=.10?, complete parts a and b. Upper H 0H0?: μ=119 Upper H 1H1?: μ ≠119. What conclusion should be? drawn? Determine the? p-value for this test.

What is nominal rate of return on TIPS bond in first year : Consider a newly issued TIPS bond with a 3-year maturity, par value of $1,000, and coupon rate of 5.40%. Assume annual coupon payments. Time Inflation in Year Just Ended Par Value Coupon Payment + Principal Repayment = Total Payment 0 $ 1,000.00 1 3...

The firm maintains a debt-equity ratio : Rodney Ruxin's Legal Services is raising capital to open a new law office in southern California. The project has an initial start up cost of $752,995. The firm maintains a debt-equity ratio of 0.50 and has a flotation cost of debt of 6.8 percent and..

The closest pure-play firm for the proposed PSY division : Gangnam Corp is a South Korea-based music entertainment company, but is interested in launching a new line of clothes and sunglasses under the brand name PSY in hopes of becoming an international phenomenon. They have surveyed the clothing industry a..

Determine the optimal number of yards of material : The Sofaworld Company purchases upholstery material from Barrett Textiles. The company uses 45,000 yards of material per year to make sofas. The cost of ordering material from the textile company is $1,500 per order. It costs Sofaworld $0.70 per yard..

How much will he have to save each month in years : Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $28,500 per month for 25 years, with the first payment received 30 years and 1 month from now. If he can..

Compute the annual time-weighted yield rate of the stock : Arthur buys $2,000 worth of stock. Six months later, the value of the stock has risen to $2,200 and Arthur buys another $1,000 worth of stock. After another eight months, Arthur’s holdings are worth $2,700 and he sells off $800 of them. Ten months la..

Previous generation of computer chip manufacturing equipment : Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The firm’s tax rate is 30%. What is..

User Account

All Pages