The total market value of Segura Corporation is $16 million, and the total value of its debt is $8 million. The treasurer estimates that the beta of the stock is currently 1.5 and that the expected risk premium on the market is 6 percent. The Treasury bill rate is 8 percent.
Note: Please make sure your answers are accurate to 2 decimal places and your answers for parts (a), (c) and (d) are in percentage form. (For example: 34.56%)
a) What is the required rate of return on Segura Corporation's stock?Rate of return on stock =17%
b) What is the beta of the company's existing portfolio of assets? The debt is perceived to be virtually risk-free.Beta of existing assets =0.75c)
Estimate the weighted-average cost of capital assuming a tax rate of 36 percent.WACC =%
d) Suppose the company wants to diversify into a new market. The beta of emerging companies in this field with no debt outstanding is 1.3. What is the required rate of return on Segura Corporation's new venture?Rate of return on new venture =%
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