Free valley inc.solve this question financial accounting Green Valley Inc. has a beta of 1.25 and a marginal tax rate of25%. The expected market return is 15% and the risk-free rate(Treasury security) is 4%. Calculate the firm's cost of internalequity.

Step 1: Define Cost of Internal Equity The Cost of Internal Equity is the return required by…

Answered: Green Valley Inc. has a beta of 1.25…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 6P

See similar textbooks

Question

100%

Free valley inc.solve this question financial accounting

Green Valley Inc. has a beta of 1.25 and a marginal tax rate of
25%. The expected market return is 15% and the risk-free rate
(Treasury security) is 4%. Calculate the firm's cost of internal
equity.

Expert Solution

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

Corcovado Pharmaceuticals. Corcovado Pharmaceutical's cost of debt is 7.30%. The risk-free rate of interest is 3.60%. The expected return on the market portfolio is 7.80%. Corcovado's effective tax rate is 30%. Its optimal capital structure is 40% debt and 60% equity. a. If Corcovado's beta is estimated at 1.60, what is its weighted average cost of capital? b. If Corcovado's beta is estimated at 1.10, significantly lower because of the continuing profit prospects in the global pharma sector, what is its weighted average cost of capital? a. If Corcovado's beta is estimated at 1.60, what is its weighted average cost of capital? % (Round to two decimal places.)
NewLinePhone Corp. is very risky, with a beta equal to 2.8 and a standard deviation of returns of 32%. The risk-free rate of return is 3% and the market risk premium is 8%. NewLinePhone's marginal tax rate is 35%. Use the capital asset pricing model (CAPM) to estimate NewLinePhone's cost of retained earnings. (*You must show your calculation process as well.)
Hampton Corporation has a beta of 1.3 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free interest rate is 4%. Estimate the firm’s cost of internal equity.
DraftKings Inc (DKNG) has a capital structure of 29% debt and 71% equity. The expected return on the market is 7.65%, and the risk-free rate is 2.41%. What discount rate should an analyst use to calculate the NPV of a project with an equity beta of 1.22 if the firm’s after-tax cost of debt is 4.26%? A. 3.15% B. 5.18% C. 7.49% D. 9.01%
None.
A. CALCULATE the cost of equity capital of H Ltd., whose risk-free rate of return equals 10%. The firm's beta equals 1.75 and the return on the market portfolio equals to 15%. B. The current ratio of H Ltd is 5:1 and standard current ratio given by accounting bodies is 2:1? Do you think that H Ltd should try to reduce its current ratio?
I need this question answer general accounting
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company $1 Discount Store Everything $5 Forecasted return 12% 11% Standard deviation of returns 8% 10% Beta 1.5 1.0 What would be the fair return for each company according to the capital asset pricing model (CAPM)?
Here are data on two companies. The T-bill rate is 5.6% and the market risk premium is 7.1%. $1 Discount Store Everything $5 13% 18% Company Forecast return. Standard deviation of returns Beta Company $1 Discount Store Everything $5 Expected Return 14% 16% Required: What would be the expected rate of return for each company, according to the capital asset pricing model (CAPM)? (Round your answers to 2 decimal places.) % % 1.6 1.0
Intuit Inc. (INTU) has a capital structure of 38% debt and 62% equity. The expected return on the market is 6.31%, and the risk-free rate is 2.04%. What discount rate should an analyst use to calculate the net present value (NPV) of a project with an equity beta of 1.08 if the firm’s after-tax cost of debt is 5.56%? A. 3.98%. B. 4.70%. C. 5.48%. D. 6.23%.
Rolex, Inc. has equity with a market value of $20 million and debt with a market value of $10million. Assume the firm has no default risk and can borrow at the risk-free interest rate. Therisk-free interest rate is 5 percent per year, and the expected return on the market portfolio is11 percent. The beta of the company's equity is 1.2. The tax rate is 20%. What is the cost ofcapital for an otherwise identical all-equity firm? handwrite please
Rolex, Inc. has equity with a market value of $20 million and debt with a market value of $10million. Assume the firm has no default risk and can borrow at the risk-free interest rate. Therisk-free interest rate is 5 percent per year, and the expected return on the market portfolio is11 percent. The beta of the company's equity is 1.2. The tax rate is 20%. What is the cost ofcapital for an otherwise identical all-equity firm?

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS

Green Valley Inc. has a beta of 1.25 and a marginal tax rate of 25%. The expected market return is 15% and the risk-free rate (Treasury security) is 4%. Calculate the firm's cost of internal equity.