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2. You are the CFO of a parts company that is expanding into a new construction division. The project will costs $20M and produce perpetual cash flows of $4M each year, starting next year. You have the following information of a publicly traded construction company (Mikelnc): - 100 bonds outstanding, rated CCC, priced at $20 per bond - 100 shares outstanding, priced at $30 per share - The company's equity beta is 1.3 - The beta of AAA, BBB, and CCC rated debt is 0.05,0.10, and 0.20 , respectively. What is the asset beta of Mikelnc? 3. Suppose that the risk free rate is 4 percent and the market risk premium is 6 percent, what is the correct discount rate for your construction division? (Hint: since your new division is not yet created, you should apply the information that you have above from Mikelnc) (cost of capital, slide 34) 4. What is the NPV of the construction division? Should you make the investment? (Hint: note that you have perpetual cash flows that start next year, so you will need to apply the present value formula for cash flows that are never ending.) (cost of capital, slide 34)