beta equal to 1.5. The book value of equity is NOK 40 million. The company also has NOK 70 million in long-term debt, the debt beta is equal to zero. Risk-free interest rate is 3% and the market risk premium is 7%. The company pays 30% income tax. (There is nobody investor tax, Se=Sk=0) a) What is the market value of the company's equity? What does it mean that the debt beta is zero? b) What is the company's equity cost and the company's weighted average cost of capital (total cost of capital)? c) What would the company's cost of equity be if th
beta equal to 1.5. The book value of equity is NOK 40 million. The company also has NOK 70 million in long-term debt, the debt beta is equal to zero. Risk-free interest rate is 3% and the market risk premium is 7%. The company pays 30% income tax. (There is nobody investor tax, Se=Sk=0) a) What is the market value of the company's equity? What does it mean that the debt beta is zero? b) What is the company's equity cost and the company's weighted average cost of capital (total cost of capital)? c) What would the company's cost of equity be if th
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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The company Nexti AS has 2 million shares outstanding with a market price of NOK 30 per share and with an equity beta equal to 1.5. The book value of equity is NOK 40 million. The company also has NOK 70 million in long-term debt, the debt beta is equal to zero. Risk-free interest rate is 3% and the market risk premium is 7%. The company pays 30% income tax. (There is nobody investor tax, Se=Sk=0)
a) What is the market value of the company's equity? What does it mean that the debt beta is zero?
b) What is the company's equity cost and the company's weighted average cost of capital (total cost of capital)?
c) What would the company's
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