Baidu and Yahoo have a very similar business. We assume that their asset risk is the...

  

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Baidu and Yahoo have a very similar business. We assume that their asset risk is the same. The market values of Baidu's debt and equity are $2 billion and $ 8 billion respectively, while Yahoo's debt and equity market values are $ 3 billion and S 6 billion. The debt of both companies is risk-free. Baidu's equity beta is 2. The risk-free rate of return is 6%. The expected (net) return on the market portfolio is 10%. Yahoo is considering a new real investment project, which has the same risk with its existing business. The project's cost is S 40 million. The cash flow of the project will be realized one year ahead and has the following joint distribution with the market portfolio, where x>y. Market Scenario Great Good Bad Probability 0.25 0.50 0.25 Cash flow Next Year of Yahoo's Project $73.2 million $55.2 million $41.2 million a. What is the NPV of Yahoo's new project approximately? b. What are the values of x and y? c. Find the tracking portfolio of Yahoo' project? Net Return of Market Portfolio (%) 30 X y Baidu and Yahoo have a very similar business. We assume that their asset risk is the same. The market values of Baidu's debt and equity are $2 billion and $ 8 billion respectively, while Yahoo's debt and equity market values are $ 3 billion and S 6 billion. The debt of both companies is risk-free. Baidu's equity beta is 2. The risk-free rate of return is 6%. The expected (net) return on the market portfolio is 10%. Yahoo is considering a new real investment project, which has the same risk with its existing business. The project's cost is S 40 million. The cash flow of the project will be realized one year ahead and has the following joint distribution with the market portfolio, where x>y. Market Scenario Great Good Bad Probability 0.25 0.50 0.25 Cash flow Next Year of Yahoo's Project $73.2 million $55.2 million $41.2 million a. What is the NPV of Yahoo's new project approximately? b. What are the values of x and y? c. Find the tracking portfolio of Yahoo' project? Net Return of Market Portfolio (%) 30 X y

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a What is the NP V of Yahoo s new project approximately ANS WER The NP V of the project is approxima... View the full answer