ABC Corp. is an e-commerce company. Its management is planning to start its own package delivery business (new to the firm) to be financed with only equity. SF logistics and XYZ Enterprise are two firms that specializes in this package delivery business. You are given the following financials for these firms: ABC Corp. currently has a stock price of $18 per share with 25 million shares outstanding. Its market value of debt is $300 million. The company has a debt beta of 0.1, an equity beta of 1.63, and it faces a tax rate of 21%. XYZ Enterprise is an all-equity financed firm with a market capitalization of $400 million. The company has an equity beta of 1.4 and faces a tax rate of 21%. SF logistics has a stock price of $10 per share with 10 million shares outstanding. Its market value of debt is $300 million. The firm has a debt beta of 0.2, an equity beta of 1.6, and it faces a tax rate of 21%. Assume that the risk-free rate is 2% and the expected market return is 6%. If the management of ABC asks for an estimate of cost of capital with a small estimation error, then your estimate of the cost of capital for the ABC's package delivery business is %. Note that if you have several appropriate estimates, then just take the simple average of these estimates as your final cost of capital to minimize the estimation error. Instruction: Type ONLY your numerical answer in the unit of percentage. % sign is already there. Thus, so don't input the % sign. Round to the nearest two decimal places. E.g., if your answer is 10.136%, then input 10.14.
ABC Corp. is an e-commerce company. Its management is planning to start its own package delivery business (new to the firm) to be financed with only equity. SF logistics and XYZ Enterprise are two firms that specializes in this package delivery business. You are given the following financials for these firms: ABC Corp. currently has a stock price of $18 per share with 25 million shares outstanding. Its market value of debt is $300 million. The company has a debt beta of 0.1, an equity beta of 1.63, and it faces a tax rate of 21%. XYZ Enterprise is an all-equity financed firm with a market capitalization of $400 million. The company has an equity beta of 1.4 and faces a tax rate of 21%. SF logistics has a stock price of $10 per share with 10 million shares outstanding. Its market value of debt is $300 million. The firm has a debt beta of 0.2, an equity beta of 1.6, and it faces a tax rate of 21%. Assume that the risk-free rate is 2% and the expected market return is 6%. If the management of ABC asks for an estimate of cost of capital with a small estimation error, then your estimate of the cost of capital for the ABC's package delivery business is %. Note that if you have several appropriate estimates, then just take the simple average of these estimates as your final cost of capital to minimize the estimation error. Instruction: Type ONLY your numerical answer in the unit of percentage. % sign is already there. Thus, so don't input the % sign. Round to the nearest two decimal places. E.g., if your answer is 10.136%, then input 10.14.
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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Transcribed Image Text:ABC Corp. is an e-commerce company. Its management is planning to start its own package delivery business (new to the firm) to be financed with only equity. SF logistics and XYZ Enterprise are two firms that
specializes in this package delivery business. You are given the following financials for these firms:
ABC Corp. currently has a stock price of $18 per share with 25 million shares outstanding. Its market value of debt is $300 million. The company has a debt beta of 0.1, an equity beta of 1.63, and it faces a tax
rate of 21%.
XYZ Enterprise is an all-equity financed firm with a market capitalization of $400 million. The company has an equity beta of 1.4 and faces a tax rate of 21%.
SF logistics has a stock price of $10 per share with 10 million shares outstanding. Its market value of debt is $300 million. The firm has a debt beta of 0.2, an equity beta of 1.6, and it faces a tax rate of 21%.
Assume that the risk-free rate is 2% and the expected market return is 6%. If the management of ABC asks for an estimate of cost of capital with a small estimation error, then your estimate of the cost of capital for the
ABC's package delivery business is %. Note that if you have several appropriate estimates, then just take the simple average of these estimates as your final cost of capital to minimize the estimation error.
Instruction: Type ONLY your numerical answer in the unit of percentage. % sign is already there. Thus, so don't input the % sign. Round to the nearest two decimal places. E.g., if your answer is 10.136%, then input
10.14.
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