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Homework answers / question archive / Assume the following information for firm Omega: Bonds = €30 million with yield to maturity = 8%; Stocks = €100 million; covariance of the stock returns with the market = 0

Assume the following information for firm Omega: Bonds = €30 million with yield to maturity = 8%; Stocks = €100 million; covariance of the stock returns with the market = 0

Finance

Assume the following information for firm Omega: Bonds = €30 million with yield to maturity = 8%; Stocks = €100 million; covariance of the stock returns with the market = 0.048; standard deviation of the market = 0.20; market risk premium = 0.075; risk free return = 0.06; corporate tax rate = 0.28. Omega plans to buy a new machine that costs €40 million. The machine will lead to annual cash flows of €6 million per year for 20 years. The purchase of machine will not change the risk level of the firm. Should Omega buy the machine?

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