Question18 Aurora Systems Ltd. is a diversified advanced manufacturing firm that develops high-precision control systems for industrial robotics. The company is now considering expanding into satellite communication technologies, a business expected to have different risk characteristics from its existing operations. The CFO must determine suitable discount rates for both current and new projects. The following information is available:Capital Structure and Current Market Information10-year government bond yield: 3.6% Aurora bond yield spread over government bonds: 3.9% Corporate tax rate: 30% Preferred shares: Dividend rate 7.5% on a par value of $100; currently trading at $125. Common shares: Price $48, expected dividend next year $2.40, with a constant growth rate of 5%. Capital structure by market value:Common equity = 60% Preferred equity = 10% Debt = 30% Note: Enter answers as numbers rounded to two decimal places where required. a) What's the company's cost of common equity?[input]% b) What's the company's cost of preferred equity?[input]% c) What's the company's before tax cost of debt?[input]% d) What is the company’s after-tax WACC? [input]% The proposed satellite communication division is expected to face greater systematic risk than Aurora’s existing operations. Comparable publicly traded satellite-tech firms have an equity beta of 1.6 and are assumed to have capital structures similar to Aurora’s target capital structure. Assume the risk-free rate is 3.6% and the market risk premium is 6%. e) Estimate the project cost of capital appropriate for the new business.[input]% f) Which statement best explains why Aurora should use this project-specific rate rather than its corporate WACC? Select one alternative Because unsystematic risk cannot be diversified. Because the new business has different systematic risk, and discount rates should match the project’s beta. Because the risk-free rate changes across sectors. Because the WACC already reflects project-specific risk. Aurora’s strategy team has identified two potential satellite projects:[table] Project | Beta | Expected IRR Nova | 2.1 | 14% Helios | 0.8 | 9% [/table]The risk-free rate is 3.6% and the market risk premium is 6%. Both projects have conventional cashflows.g) Which statement correctly reflects the projects’ NPVs? Select one alternative Only Project Nova has NPV > 0. Both projects have NPV < 0. Only Project Helios has NPV > 0. Both projects have NPV > 0. ResetMaximum marks: 7 Flag question undefined [input]简答题