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Category > Business & Finance Posted 25 May 2017 My Price 12.00

The total market value of Okefenokee Real Estate

The total market value of Okefenokee Real Estate Company's equity is $12 million, and the total value of its debt is $8 million. The treasurer estimates that the beta of the stock currently is 1.4 and that the expected risk premium on the market is 10%. The Treasury bill rate is 5%.

a. What is the required rate of return on Okefenokee stock?

Required rate of return ______%

b. What is the beta of the companyAc€?cs existing portfolio of assets? The debt is perceived to be virtually risk-free. (Round your answer to 2 decimal places.)

Weighted-average beta ______

c. Estimate the weighted-average cost of capital assuming a tax rate of 35%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

WACC _______%

d. Estimate the discount rate for an expansion of the companyAc€?cs present business. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Discount rate _______%

e. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 1.6. What is the required rate of return on OkefenokeeAc€?cs new venture? (You should assume that the risky project will not enable the firm to issue any additional debt.)

Required rate of return _______%

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Status NEW Posted 25 May 2017 08:05 AM My Price 12.00

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