You were hired to carry out the evaluation of a project for which an initial investment of $ 155,000 is required, it is expected to have a life of 5 years generating the following free cash flows $ 12,000, $ 35,000, $ 42,500, $ 44,500 and $ 72,000. The project is expected to be financed with a capital structure that targets a D / E of 1.6, the cost of debt before taxes (rd) reaches 6.5%, the income tax rate (T) is 26%. Additionally, it obtained information from companies that have a comparable business risk:  Business Beta (equity) FROM RRR 1.8 2.10 VVV 1.6 1.25 ZZZ 1.7 1.90  The market return rate is 12%, the risk free rate is 3.5%. It is requested that:  Using the data presented in the table and applying the pure play method, calculate the beta of the assets (asset beta). Applying the D / E target, calculate the beta of the project. Using the CAPM model and based on your estimate of the project's beta, calculate the cost of equity (re). Calculate the weighted average cost of capital (WACC) for the project. Calculate the Net Present Value and the Internal Rate of Return for the project, analyze the results obtained.

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To calculate the beta of the assets using the pure play method we need to identify a comparable company that operates in the same industry as the proj... View the full answer