3. Holland Auto Parts is considering a merger with Workman Car Parts. Workman's market-determined beta is 0.9, and the firm currently is financed with 20% debt, at an interest rate of 89%, and its tax rate is 25%. If Holland acquires Workman, it will increase the debt to 60%, at an interest rate of 996, and the tax rate will increase to 35%. The risk-free rate is 69% and the market risk premium is 49%. What will Workman's required rate of return on equity be after it is acquired?

3. Holland Auto Parts is considering a merger with Workman Car Parts. Workman's market-determined beta is 0.9, and the firm currently is financed with 20% debt, at an interest rate of 89%, and its tax rate is 25%. If Holland acquires Workman, it will increase the debt to 60%, at an interest rate of 996, and the tax rate will increase to 35%. The risk-free rate is 69% and the market risk premium is 49%. What will Workman's required rate of return on equity be after it is acquired?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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