13. You are planning an investment into the consumer products industry. You have information on two...

 

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13. You are planning an investment into the consumer products industry. You have information on two comparable firms. Firm P&G Unilever Equity Beta 1.1 0.95 Debt Beta 0 0.1 Stock Price ($) 70 50 The riskfree rate is 1%, and the market risk premium is 5%. Number of Shares (mil) 100 60 Value of Debt ($mil) 500 300 a. What is your best estimate of the cost of assets Ra in the consumer products industry? [15 points] b. What is the cost of equity Re for a firm which is 5% debt-to-value? Assume the debt in this case is risk-free. 13. You are planning an investment into the consumer products industry. You have information on two comparable firms. Firm P&G Unilever Equity Beta 1.1 0.95 Debt Beta 0 0.1 Stock Price ($) 70 50 The riskfree rate is 1%, and the market risk premium is 5%. Number of Shares (mil) 100 60 Value of Debt ($mil) 500 300 a. What is your best estimate of the cost of assets Ra in the consumer products industry? [15 points] b. What is the cost of equity Re for a firm which is 5% debt-to-value? Assume the debt in this case is risk-free.

Answer rating: 100% (QA)

a To estimate the cost of assets Ra in the consumer products industry we can use the Capital Asset P... View the full answer