Example: Comparision company (pure play) approach General Conglomerates evaluates an oil exploration project proposed by the manager of its aviation division. Calculate the correct discount rate to...


 After the calculation of the correct equity beta, then i want to calculate the expected return by using the CAPM. In the CAPM r_f + beta * Risk premium will i still include the r_f in the risk premium since debt is risk free?


Example: Comparision company (pure play) approach<br>General Conglomerates evaluates an oil exploration project proposed by the manager of its aviation<br>division. Calculate the correct discount rate to use to evaluate the project. Assume that there are no<br>taxes and all debt is risk free.<br>The risk free rate is 7% and the market risk premium equals 8%.<br>Company<br>Equity Beta<br>E/(D+E)<br>General American Oil<br>1.81<br>0.85<br>Louisiana Land and Expl.<br>1.29<br>0.88<br>Mesa Petroleum<br>2.36<br>0.63<br>Murphy Oil<br>1.60<br>0.73<br>Natomas<br>1.84<br>0.65<br>Oceanic Exploration<br>Superior Oil<br>1.53<br>0.77<br>1.35<br>0.84<br>

Extracted text: Example: Comparision company (pure play) approach General Conglomerates evaluates an oil exploration project proposed by the manager of its aviation division. Calculate the correct discount rate to use to evaluate the project. Assume that there are no taxes and all debt is risk free. The risk free rate is 7% and the market risk premium equals 8%. Company Equity Beta E/(D+E) General American Oil 1.81 0.85 Louisiana Land and Expl. 1.29 0.88 Mesa Petroleum 2.36 0.63 Murphy Oil 1.60 0.73 Natomas 1.84 0.65 Oceanic Exploration Superior Oil 1.53 0.77 1.35 0.84

Jun 06, 2022
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