Answered: vered cashflow is 35,000,000 a year in…

vered cashflow is 35,000,000 a year in perpetuity and the unlevered value of assets is 545,000,000. The cost of debt is 4.45% and the tax rate is 34%. What is the levered return on equit

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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Super Co. is currently keeping a constant debt-to-equity policy with a debt-to value ratio of 30%. The after-tax unlevered cashflow is 35,000,000 a year in perpetuity and the unlevered value of assets is 545,000,000. The cost of debt is 4.45% and the tax rate is 34%.

What is the levered return on equity?

ans: rE=7.27%

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