company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free- 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM 1.0 1.5 1.6 1.7 QUESTION 43 sed on the information from Question 42, find the firm's unleveraged beta using the Hamada Equation 0.95 1.0 1.25 1.35 QUESTION 44 sed on the information from Question 42 and 43, what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S-1.0) using the Hamada Equation 1.25 1.35 1.95 2.25

company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free- 6%. Currently the company's cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firm's current leveraged beta using the CAPM 1.0 1.5 1.6 1.7 QUESTION 43 sed on the information from Question 42, find the firm's unleveraged beta using the Hamada Equation 0.95 1.0 1.25 1.35 QUESTION 44 sed on the information from Question 42 and 43, what would be the company's new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S-1.0) using the Hamada Equation 1.25 1.35 1.95 2.25

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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Consider this case: Globex Corp. currently has a capital structure consisting of 30% debt and 70% equity. However, Globex Corp.'s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3.5%, the market risk premium is 7.5%, and Globex Corp.'s beta is 1.15. If the firm's tax rate is 25%, what will be the beta of an all-equity firm if its operations were exactly the same? Now consider the case of another company: US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 10%, and its tax rate is 25%. It currently has a levered beta of 1.15. The risk-free rate is 3.5%, and the risk premium on the market is 7.5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm's level of debt will cause its before-tax cost of debt to increase to 12%. First, solve for US Robotics Inc.'s unlevered beta. Use US Robotics Inc.'s unlevered beta to solve…
Suppose the stock of the konikoyu company a publisher of college textbooks has a beta (B) of 1.3. The firm is 100 percent equity financed; that is it has no debt. Konikoyu is considering a number of capital budgeting projects that will double its size. Tlbecause these new projects are similar to the firm's existing one, the average of the new beta on the projects is assumed to be equal to konikuyo existing beta. The risk free rate is 7percent. The appropriate discount rate for these new projects assuming a market risk premium of 9.5 percent has been calculated. What are the two key assumptions we made in the case of konikoyu company cost of capital calculations?
Equity holders’ investment in the firm is K100 million, and the beta of the equity is 0.6. if the T-bill rate 6 %, and the market risk premium is 8 %. What would be a fair annual profit?
Assume the company has weight of debt WD = 70%, cost of debt RD = 13%, for un-leveraged firm: Bu =1; the company has Tax Rate = 30%, risk-free rate Rf = 3%, Market Return = 10%, free cash flow FCF0 = 200 million, growth rate g = 4%. Use the following formula for beta of leveraged company: B = Bu [1+ (1-T) × (WD /WS)], What is the WACC and what is the value of the firm?
Tele LLC has a beta of 1.4 and is trying to calculate its cost of equity capital. If the risk - free rate of return is 9 percent and the average market return 14 percent, then what is the firm's after - tax cost of equity capital if the firrn's marginal tax rate is 30 percent? Select one: a. 22% b. 12% c. 16%. D. None of these
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Suppose the Machine Corp. has a capital structure of 80% equity and 20% debt with the following information: a Beta of 1.3, Market Risk Premium of 10%. Kamino's average long term debt pays a 10% annual coupon with ten years to maturity, currently selling for $800 (face value of $1,000). If Kamino's tax rate is 20% and the risk free rate is 2%, what is the Weighted Average Cost of Capital?
I need to calculate the levered beta for the following: Digital has a target capital structure of 10% debt and 90% equity as well as a 40% marginal tax rate. If you estimated an unlevered beta of 1.30, calculate the levered beta for Digital.
Suppose Alcatel-Lucent has an equity cost of capital of 9.1%, market capitalization of $10.36 billion, and an enterprise value of $14 billion. Assume Alcatel-Lucent's debt cost of capital is 5.5%, its marginal tax rate is 34%, the WACC is 7.68%, and it maintains a constant debt-equity ratio. The firm has a project with average risk. Expected free cash flow, debt capacity, and interest payments are shown in the table: a. What is the free cash flow to equity for this project? b. What is its NPV computed using the FTE method? How does it compare with the NPV based on the WACC method? a. What is the free cash flow to equity for this project? The free cash flow to equity for this project is: (Round all answers to two decimal places. Use a minus sign to indicate a negative number.) Year 1 2 FCFE ($ million) 0 3 Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 FCF ($ million) D=dxV² 45 39.60 Interest 2.62 0 - 100 47.64 0.00 Print Done 2 99…

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