The project has the same risk level as the company

Assignment Help Financial Management

Reference no: EM13730734

Texas Chemicals is a major producer of oil-based fertilisers in the US. The company’s stock is currently selling for $80 per share and there are 10 million shares outstanding. The company also has debt outstanding with a market value of $400 million. The company’s current capital structure approximates well its target position. The company’s equity beta is equal to 2.0.

The company is considering an expansion project which is expected to generate a rate of return of 20% annually. Assuming a corporate tax rate of 50%, risk free rates of 8%, and the expected rate of return on the market portfolio of 17%, determine whether the company should go ahead with the project under the following scenarios:

a) The project has the same risk level as the company.

Reference no: EM13730734

Questions Cloud

What is the expected annual contribution to retirement plan : ELO manufacturing is looking to hire a new plant supervisor. They have 2 qualified candidates, Charlie, 43 and Kevin, 36. Both would have a starting salary of $62,000. Each could expect a 3% cost of living raise each year.

Explain how his vision and values were reflected : Explain how his vision and values were reflected in his leadership style. Determine and explain what type of leader Steve Jobs was

Application of a body of knowledge : Demonstration and application of a body of knowledge (GQ1 - 20%) Is prepared for life long learning and personal development (GQ2- 20%) communicates effectively (GQ6 - 60%).

The five stages of group development : Reflect on at least one (1) experience that you have had being a member of a group and at least one (1) different experience that you have had being a member of a team. Classify the characteristics of being a member of the group that made the experie..

The project has the same risk level as the company : Texas Chemicals is a major producer of oil-based fertilisers in the US. The company’s stock is currently selling for $80 per share and there are 10 million shares outstanding. The company also has debt outstanding with a market value of $400 million...

Conflicts between coworkers-fear of layoffs : The workplace can be an especially stressful environment. Personal conflicts between coworkers, fear of layoffs, and heavy workloads can be causes of negative stress. This stress can be carried to our homes and after-work activities, impacting per..

Explains how the movie shed light on the resilience : explains how the movie shed light on the resilience and character of African Americans(free and slaves), Southern plantation owners, the white community, and Northern abolitionists during this time period, 1830-1865.

What new ethical and social responsibility issues : What new ethical and social responsibility issues might present themselves when moving from a domestic-only organization to one that reaches a global arena? Why are they different?

Weighted average cost of capital-use both debt and equity : What is the weighted average Cost of Capital (WACC)? Why is it important for organizations that use both debt and equity financing?

User Account

All Pages