5) Equity of Freeway Inc. has a beta of 1.4 and beta of debt is 0.2. Freeway has a debt to equity ratio of 0.3. The equity beta of Sunshine Company is 2 while its debt has a beta of zero. Sunshine's...

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Extracted text: 5) Equity of Freeway Inc. has a beta of 1.4 and beta of debt is 0.2. Freeway has a debt to equity ratio of 0.3. The equity beta of Sunshine Company is 2 while its debt has a beta of zero. Sunshine's debt to equity ratio is 0.5. Make following assumptions and answer these questions: Assumptions: (a) CAPM holds, (b) Expected return on market portfolio = 19%, (c) Risk-free rate = 8%, (d) There are no taxes or costs of financial distress a. What discount rate to use if Freeway Inc. wishes to invest in the business line of Sunshine. b. If Freeway goes ahead with investment, these projects constitute 10% of Freeway's overall value. If its debt beta and debt/equity ratio remain unchanged, post-investment, what will be the Freeway's new equity beta?