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Thunder Bay Entertainment Inc. has two separate divisions: DVD rental and sporting goods. The beta ...

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Thunder Bay Entertainment Inc. has two separate divisions: DVD rental and sporting goods. The beta ...

Thunder Bay Entertainment Inc. has two separate divisions: DVD rental and sporting goods. The beta of the entire company is 1.25. The beta of the DVD rentals division is 0.8 and the beta of the sporting goods division is 1.5. The risk-free rate is 4% and the market risk premium is 7.5%. Which of the following independent projects should the company undertake?

Project	Industry	CF0	Perpetual annual CF
I	Sporting goods	$150,000	$25,000
II	Sporting goods	$200,000	$30,000
III	DVD rental	$50,000	$6,000
IV	DVD rental	$80,000	$7,500

▸ Projects I and II

▸ Projects III and IV

▸ Projects II and IV

▸ Projects I and III

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Corporate Finance

Edition: 5^th

Author: Booth

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