A firm has an unlevered pr asset beta of 1.0. This firm is currently financed with $100 million of debt and $400 million of equity (current market values). The book value of the common stock is $250 million. The firms corporate tax rate is 25%. The required return on the market index portfolio is 9% and the risk free rate of interest is 3%. The beta of the firms debt is assumed to be 0. Calculate the after-tax WACC and obviously those items that are essetial to calculating WACC. Calculate the firms required rate of return on equity(not WACC) if the risk free rate increases from 3% to 4%, but the market risk premium remains the same as before.
Please do not give solution in image format thanku
A firm has an unlevered pr asset beta of 1.0. This firm is currently financed with $100 million of debt and $400 million of equity (current market values). The book value of the common stock is $250 million. The firms corporate tax rate is 25%. The required return on the market index portfolio is 9% and the risk free rate of interest is 3%. The beta of the firms debt is assumed to be 0. Calculate the after-tax WACC and obviously those items that are essetial to calculating WACC. Calculate the firms required rate of
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images