What is the re for the project

Assignment Help Finance Basics
Reference no: EM132703625

-Suppose you are working as a financial analyst for Tesla. Elon Musk has asked you to determine the systematic operating risk (that's a particular type of beta) of adding a new beverage-making-technology to the company's line of vehicles. Of course, Tesla has no experience in this specific area (beverage-making-technology). You remember your finance course and look around for pure plays. You decide on WalterCola as the closest pure play. WalterCola's beta (from Yahoo!Finance) is 1.28 and that company has a D/E ratio of 0.28, and a tax rate of 0.17. What is the (numerical value of the) systematic operating risk of the project that Elon Musk has asked you ascertain? Answer should include four digits to the right of the decimal point.

-Assume your calculated asset beta for the project (beverage-making-technology to be included in Tesla vehicles) is 0.62. Now Elon Musk has asked you to determine the required return on the equity that the firm plans to issue to PARTIALLY finance the project. The project itself will be financed with half debt and half equity. You also look up the risk-free rate and it currently equals 1.8%; and you determine that the accepted market risk premium (these days) is 4.5%. Tesla's company tax rate is 20% What is the re for the project? Answer should include four digits to the right of the decimal point.

Reference no: EM132703625

Questions Cloud

Find the compensation rate s for default risk : A lender requires an annual effective interest rate of r=4% without default risk, and an annual effective interest rate of R=5.26% with default risk.
Explain significant issue relating to ethics and morality : You will write a 7 page research paper on a significant issue of your choosing relating to ethics and morality in any aspect of the course.
What is zoom video communications : What is Zoom Video Communications' business-level strategy?
What is the wacc for the project : Remembering that the project is financed by half debt and half equity, and that the company tax rate is 20%, what is the WACC for the project?
What is the re for the project : What is the re for the project? Answer should include four digits to the right of the decimal point.
Discuss the background of rehabilitation : There is considerable disagreement about the effectiveness of rehabilitation. In Chapter 14 of the text the authors note that studies have shown both little.
Determine the profit from an index arbitrage : If the stock index is at 148, the three-month futures price is 151, the dividend yield is 5 percent and the interest rate is 8 percent
What is the hypothesis of the research : What is the hypothesis of the research? List and operationalize all independent and dependent variables examined. What method of data collection was used.
Advantages of international diversification : Determine why, given the advantages of international diversification, some firms choose not to expand internationally.

Reviews

Write a Review

Finance Basics Questions & Answers

  Calculate the annual end of year loan payment amount

Calculate the annual end of year loan payment amount. Prepare a loan amortization schedule showing the interest and principal break down of each of the three loan payments.

  If the forward contract were terminated today

If the forward contract were terminated today, would you expect to have to pay or receive this amount?

  Determine the variable cost per unit

Determine the variable cost per unit, the total variable cost, and the total contribution margin.

  Prepare journal entries for each of the transactions

Wellington Company had the following transactions involving notes payable. Prepare journal entries for each of the transactions.

  How much was the firm net income

The company had $16,500 of outstanding bonds that carry a 7.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was the firm's net income? The firm uses the same depreciation expense for tax and stockholder reporting pu..

  Calculate the theoretical warrant value

For each of the common stock prices given, calculate the theoretical warrant value. Graph the theoretical and market values of the warrant on a set of axes with per share common stock price on the x axis and warrant value on the y axis.

  Compute expected rate of return for each project

There are two projects, A and B. the following probability distribution for the projects are given below A B

  In the calculations round normal distribution values to 4

use the black scholes model to find the price for a call option with the following inputs current stock price 28 strike

  Define and discuss indirect world systematic

define and discuss indirect world systematic

  Identify the management issues that are portrayed in case

Management Case:. Developing Global Teams to Meet 21st Century Challenges at W.L. Gore & Associates.

  Strategic planning and financial planning that overlap

What are aspects of strategic planning and financial planning that overlap? Please explain.

  Evaluating the new it software project

In evaluating the new IT software project, are the cost of $50,000 spent on marketing analysis and the use of van relevant for capital budgeting decision?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd