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CBmE+195+-+Chemical+Engineering+Economics+-+Problem+Set+_4+-+Fall+2010

CBmE+195+-+Chemical+Engineering+Economics+-+Problem+Set+_4+-+Fall+2010

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University of California at Berkeley Department of Chemical and Biomolecular Engineering Chemical and Biomolecular Engineering 195 Special Topics – Chemical Engineering Economics Fall 2010 PROBLEM SET #4 – Due October 26, 2010 at the start of class 14. Amalgamated Products has the following operating divisions: Division Revenues (% of Total Revenues) Chemicals 20 Polymers 30 Food Additives 50 To estimate the cost of capital for each operating division, management has identified the following three competitors: Estimated Competitor Equity Beta Debt/(Debt + Equity) Consolidated Chemicals 1.2 0.4 Mongo Macromolecules 1.6 0.2 Foods & Flavors 0.8 0.3 a) Assuming that the debt of all of these companies is risk- free, estimate the asset beta for each of Amalgamated Products’ divisions. b) Assume that Amalgamated Products’ debt to (debt plus equity) ratio equals 0.4. What is Amalgamated Products’ equity beta? c) Assume that the risk-free interest rate is 3% and the expected return on the Wilshire 5000 Index is 8%. Estimate the
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