Answer Happy

Amazonia SA operates in two segments via two different
subsidiaries: Wood & Paper. Amazonia has a Debt-Equity ratio of
0.25 and a marginal tax rate of 40%. Every year, the Wood
subsidiary generates $400 million revenues, whereas the Paper
subsidiary generates $880 million revenues. Amazonia has
outstanding 10-year bonds with yield to maturity of 10% and a B
rating, which carry a historical default rate of 5.5%.
Historically, investors holding bonds with a similarly risky
profile experience a loss rate of 60% % in case of default. The
risk-free rate is 4% and the market equity risk premium is 10%. You
are further provided with the following information on comparable
firms:
Sector Median Beta Median D/E ratio 40% 60% Median tax rate 45% 35% Wood Paper 1.20 1.00