The Company KNV is in the construction industry and has outstanding debts valued at €4 million and its equity is valued at €6 million. The shares of KNV have a beta of 1.2 and the market has an expected risk premium of 8% p.a. The risk free rate is 4% p.a. and the KNV is risk free. The company doesn't pay any tax. Required: a) What is the required return on the KNV stock?. b) Estimate the company's cost of capital. c) Suppose the company wants to diversify its business and invest in the manufacturing of building materials. The beta of an unleveraged firm in the building materials sector is 1.1. Estimate the required return on KNV's new venture.

The Company KNV is in the construction industry and has outstanding debts valued at €4 million and its equity is valued at €6 million. The shares of KNV have a beta of 1.2 and the market has an expected risk premium of 8% p.a. The risk free rate is 4% p.a. and the KNV is risk free. The company doesn't pay any tax. Required: a) What is the required return on the KNV stock?. b) Estimate the company's cost of capital. c) Suppose the company wants to diversify its business and invest in the manufacturing of building materials. The beta of an unleveraged firm in the building materials sector is 1.1. Estimate the required return on KNV's new venture.

Name: The Company KNV is in the construction industry and has outstanding de
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Description: The Company KNV is in the construction industry and has outstanding debts valued at €4 million and its equity is valued at €6 million. The shares of KNV have a beta of 1.2 and the market has an expected risk premium of 8% p.a. The risk free rate is 4

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...

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