A conglomerate decides to diversify into genetic testing business. The investment will be financed with...
80.2K
Verified Solution
Link Copied!
Question
Finance
A conglomerate decides to diversify into genetic testing business. The investment will be financed with 20% debt and 80% common stock. Risk-free rate is 6% and the market risk premium is 7%. To estimate the project cost of capital, you identified two publicly traded pure play firms (A and B) and collected their equity betas and capital structure ratios. Assume none of the firms has preferred equity in their capital structure. What is the estimate of equity beta to be used for this genetic testing project by the conglomerate?"
|
| Company A | Company B |
| Stock beta | 1.1 | 1.3 |
| Leverage (Debt/TA) | 0.45 | 0.5 |
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
- Unlimited Question Access with detailed Answers
- Zin AI - 3 Million Words
- 10 Dall-E 3 Images
- 20 Plot Generations
- Conversation with Dialogue Memory
- No Ads, Ever!
- Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Other questions asked by students
StudyZin's Question Purchase
1 Answer
$0.99
(Save $1 )
One time Pay
- No Ads
- Answer to 1 Question
- Get free Zin AI - 50 Thousand Words per Month
Unlimited
$4.99*
(Save $5 )
Billed Monthly
- No Ads
- Answers to Unlimited Questions
- Get free Zin AI - 3 Million Words per Month
*First month only
Free
$0
- Get this answer for free!
- Sign up now to unlock the answer instantly
You can see the logs in the Dashboard.