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Ch12CaseSolution - Minicase ALLIED products narrative We...

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Minicase: ALLIED products – narrative We have made a number of necessary assumptions. The instructor may decide to make different assumptions. 1. The average beta of companies in the commercial aircaraft market (Allied Signal, Boeing, etc) is one according to the latest Value Line Investment Survey. Please note that this may change from survey to survey. We assume that the average beta is the appropriate beta for Allied Products. 2. We assume the debt to equity ratio for Allied Products is no different from the industry average. 3. We assume the debt beta is zero. These are all questionable assumptions. However, they are as good as any others. (I tend to agree with the instructor that the mini case needs to be tightened up. The above assumptions should be put in the instructors manual.) _____ Minicase: AlliedProducts Solution (RWJ, 7th Ed., Page 341-343) Assumptions Results PP&E Investment 42,000,000 Useful life of PP&E Investment (years) 7 Salvage Value of PP&E Investment 12,000,000 Annual Depreciation Expense (7 year MACRS) Payback 3.84
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