Your firm is planning to invest in an automated packaging plant

Your firm is planning to invest in an automated packaging plant. Harburtin Industries is an all-equity firm that specializes in this business. Suppose Harburtin's equity
beta is 0.85, the risk-free rate is 4%, and the market risk premium is 5%.

a. lf your firm's project is all-equity financed, estimate its cost of capital.

After computing the project's cost of capital you decided to look for other comparables to reduce estimation error in your cost of capital estimate. You find a second firm,
Thurbinar Design, which is also engaged in a similar line of business. Thurbinar has a stock price of $20 per share, with 15 million shares outstanding. It also has $100
million in outstanding debt, with a yield on the debt of 4.5%. Thurbinar's equity beta is 1.00.

b. Assume Thurbinar's debt has a beta of zero. Estimate Thurbinar's unlevered beta. Use the unlevered beta and the CAPM to estimate Thurbinar's unlevered cost of
capital.

c. Estimate Thurbinar's equity cost of capital using the CAPM. Then assume its debt cost of capital equals its yield and using these results, estimate Thurbinar's
unlevered cost of capital.

d. Explain the difference between your estimate in part (b) and part (c).

e. You decide to average your results in part (b) and part (c). and then average this result with your estimate from part (a). What is your estimate for the cost of capital
of your firm's project?

a. If your firm's project is all-equity financed, estimate its cost of capital.

The project's cost of capital is [ ]%. (Round to two decimal places.)

Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta of 0.60, expects ta generate free cash flow of $50 million this year,
and anticipates a 3% perpetual growth rate. The industrial chemicals division has an asset beta of 1.20. expects to generate free cash flow of $70 million this year, and
anticipates a 2% perpetual growth rate. Suppose the risk-free rate is 4% and the market risk premium is 5%.

a. Estimate the value of each division.

b. Estimate Weston's current equity beta

c. Estimate Weston's current cost of capital. Is this cost of capital useful for valuing Weston's projects? How is Weston’s equity beta likely to change over time?

a. Estimate the value of each division.

The cost of capital for the soft drink division is [ ]™. (Round to twa decimal places.)

Your company operates a steel plant. On average, revenues from the plant are $30 million per year. All of the plant's costs are variable costs, and are consistently 80%
of revenues. (This includes the energy costs associated with powering the plant which represent one quarter of the plant's costs. or an average of $6.00 million per
year.) Suppose the plant has an asset beta of 1.25, the risk-free rate is 4%. and the market risk premium is 5%. The tax rate is 40%, and there are no other costs.

a. Estimate the value of the plant today assuming no growth.

b. Suppose you enter a long-term contract which will supply all of the plant's energy needs for a fixed cost of $3 million per year (before tax). What is the value of the
plant if you take this contract?

c. How would taking the contract in (b) change the plant's cost of capital? Explain.

a. Estimate the value of the plant today assuming no growth.

The value of the plant today assuming no growth is s_] million. (Round to two decimal places.)

Unida Systems has 40 million shares outstanding trading for $10 per share. In addition, Unida has $100 million in outstanding debt. Suppose Unida’s equity cost of
capital is 15%. its debt cost of capital is 8%, and the corporate tax rate is 40%.

a. What is Unida's unlevered cost of capital?

b. What is Unida's after-tax debt cost of capital?

c. What is Unida's weighted average cost of capital?

a. What is Unida's unlevered cost of capital?

Unida's unlevered cost of capital is [ }%. (Round to one decimal place.)