North Pole and South Pole are competitors in the same industry. Both companies face a 24 % income tax rate. Both companies are levered. (North Pole and South Pole had the sam Betas, 1.09, when they were still unlevered.) Their capital structures look like this North Pole South Pole Debt $2,940,000 $3,850,000 Equity $3,850,000 $2,940,000 For both companies, the Betas for their debt is zero.
North Pole and South Pole are competitors in the same industry. Both companies face a 24 % income tax rate. Both companies are levered. (North Pole and South Pole had the sam Betas, 1.09, when they were still unlevered.) Their capital structures look like this North Pole South Pole Debt $2,940,000 $3,850,000 Equity $3,850,000 $2,940,000 For both companies, the Betas for their debt is zero.
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:North Pole and South Pole are competitors in the same industry.
Both companies face a 24% income tax rate.
Both companies are levered. (North Pole and South Pole had the same equity
Betas, 1.09, when they were still unlevered.) Their capital structures look like this:
North Pole South Pole
Debt $2,940,000 $3,850,000
Equity $3,850,000 $2,940,000
For both companies, the Betas for their debt is zero.
Additional information about the market:
The market portfolio's expected return is 11.1 %. The T-bill rate is 3.2%.
a. What is the Beta of equity for North Pole and South Pole? (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
b. In addition, calculate the required return on equity that would correctly reflect the
level of systematic risk. (Do not round intermediate calculations and enter your
answers as a percent rounded to 2 decimal places, e.g., 32.16.)
a.
North Pole
South Pole
b. North Pole
%
South Pole
%
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