Homework 2 Solutions

Company Name  Total                 Debt Ratio  Levered     Equity Beta  Marginal Tax Rate  Revenues             ($ Mill)  Priv-Held Automotive      65.00%      ?     40.00%    Ford Motor Company  85.98%  1.07  7.59%  157,978   Fiat Chrysler America  74.29%  2.18  11.95%  108,018   General Motors  81.18%  1.42  3.47%  144,010   1. Calculate the unlevered asset betas for each of the three comparable firms being sure to adjust appropriately for their respective marginal tax rates    2. Calculate the arithmetic industry average of the three asset betas     3. Calculate the weighted average asset beta using the revenues to determine the weights    4. Estimate a levered equity beta for the Privately-Held Automotive division for both the arithmetic and the weighted averages.    5. Write out the algebraic equation of the variance (s2) of a portfolio with three assets, A, B and C.

1 2 Debt Ratio (current) 3 Equity Ratio (current) 4 Cost of Debt 5 Market Risk Premium 6 Equity Beta 7 Debt Beta 8 Risk Free Rate 9 Corporate Tax Rate 10 11 12 a. Cost of Equity 13 b. WACC 14 c. 15 Unlvered beta 16 Debt to Equity Ratio 17 Debt to Equity Beta 18 Cost of Equity 19 Debt to Ratio Given 20 Equity Ratio 21 Revised WACC 22 Solution 30.00% 70.00% 6.00% 5.25% 1.20% 0.29 4.50% 35.00% 40%

Chapter 11, Question 5

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Problem 8-7 What is the weighted-average cost of capital for SKYE Corporation given the following information? Equity shares outstanding Stock price per share Yield to maturity on debt Book value of interest-bearing debt Coupon interest rate on debt Interest rate on government bonds SKYE's equity beta Historical excess return on stocks Tax rate Note: Enter your answer to 1 decimal place. Weighted-average cost of capital % 1 million $ 23 7.68% $14 million 9% 7% 0.75 5.8% 40%

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9

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Financial Accounting Question please solve

General Accounting Question Pls Need Answer with given option

M... Levered Beta Market Value of Equity Market Value of Debt: Cash Marginal Tax Rate Firm A 1.50 $2.4 million $600 million $50 million 37% Firm B 1.25 $1.0 billion $200 million $75 million 37% 2b. Compute the unlettered beta corrected for cash for each firm (show work). 2c. Using the unlettered beta for corrected for cash, calculate the unlevered beta of Firm A after the acquisition (show work) 2d. Firm A borrowed $1.0 billion and assumed Firm B's debt. Compute the levered beta of Firm A after the acquisition.

QUESTION 4 Blitz Industries has a debt-equity ratio of .6. Its WACC is 9.1 percent, and its cost of debt is 6.4 percent. The corporate tax rate is 22 percent. What is the company's cost of equity capital? 1.12.66 2.11.56 3.15.41 4.9.92

Qb 08.

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