Consider the material presented in chapter 14 concerning “real options.” Find an article online that provides a good example where a company has selected a project due in part because of the value of timing options. Discuss why this particular project may have been rejected by the firm if the timing options were not available. Similarly, feel free to provide an article that shows where a project was rejected by a firm but might have been accepted if proper timing options were available.
Copper Pipe Inc. is trying to estimate its optimal capital structure. Right now, Copper Pipe has a capital structure that consists of 20 percent debt and 80 percent equity, based on market values. (Its D/S ratio is 0.25.) The risk-free rate is 6 percent and the market risk premium, rM – rRF, is 5 percent. Currently the company’s cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. What would be Copper Pipe Inc’s estimated cost of equity if it were to change its capital structure to 50 percent debt and 50 percent equity?
Show your work for full credit!
The book for this course: Title: Intermediate Financial Management; Author: Eugene F. Brigham, Phillip R. Daves
Please also include a paragraph explaining the conclusion like you did last week