Currently, a firm has an equity beta of 2.5. Its existing capital mix is 40 percent risk-free debt and 60 percent equity. What is the unlevered equity beta if no borrowing involved? Ignore corporate taxes. 3.0 1.5 0.5 1.9 1.0
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Currently, a firm has an equity beta of 2.5. Its existing capital mix is 40 percent risk-free debt and 60 percent equity. What is the unlevered equity beta if no borrowing involved? Ignore corporate taxes.
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3.0
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1.5
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0.5
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1.9
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1.0
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- A company had WACC (weighted average cost of capital) equal to 8. % If the company pays off mortgage bonds with an interest rate of 4% and issues an equal amount of new stock considered to be relatively risky by the market, which of the following is true? a. residual income will increase. b. ROI will decrease. c. WACC will increase. d. WACC will decrease.ABC, Inc. has equity beta of 1.75 with total assets financed with 80% of equity. The expected excess return on the market is 7 percent, and the risk-free rate is 3 percent. The firm is considering cutting total equity to 60% of total value. What would the cost of equity be if the firm meets its target?I need help, please show me the calculation Questions: The cost of capital for a firm with a 60/40 debt/equity split, 4.5% cost of debt, 15% cost of equity, and a 35% tax rate would be? The risk free rate currently have a return of 2.5% and the market risk premium is 4.22%. If a firm has a beta of 1.42, what is its cost of equity? How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $77.77 one year from now?
- Consider this case: Globex Corp. has a capital structure that consists of 35% debt and 65% equity. The firm’s current beta is 1.10, but management wants to understand Globex Corp.’s market risk without the effect of leverage. If Globex Corp. has a 25% tax rate, what is its unlevered beta? 0.70 0.94 0.62 0.78What is a firm's weighted-average cost of capital if the stock has a beta of 2.45, Treasury bills yield 5%, and the market portfolio offers an expected return of 14%? In addition to equity, the firm finances 30% of its assets with debt that has a yield to maturity of 9%. The firm is in the 35% marginal tax bracket. In order to earn full credit, you must show your work and calculationsAllCity, Inc., is financed 42% with debt, 7% with preferred stock, and 51% with common stock. Its cost of debt is 5.8%, its preferred stock pays an annual dividend of $2.49 and is priced at $31. It has an equity beta of 1.18. Assume the risk-free rate is 2.4%, the market risk premium is 6.9% and AllCity's tax rate is 35%. What is its after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield.
- An all equity financed company currently has a beta of 1.2 and a marginal tax rate of 20%. The expected return on the market is 8%. The risk-free rate of return is 3%. The company's before-tax cost of debt is 5%. The company decides to alter its capital structure and will target 50% debt, which will remain constant. What is this company's new weighted average cost of capital (WACC)? a) 6.5% b) 7.7% c) 8.9% d) 10.2%A company is considering its optimal capital structure. The firm currently has 1 million shares outstanding at $ 20 per share (tax rate = 40%) and a debt balance of $5 million. Currently, its (levered) beta is 1.5 and its ERP is 5.5%. The current risk-free rate is 5%. Your research indicate the following ratings and pre-tax cost of debt across the different debt ratios: D/(D+E) Rating Pre-tax cost of debt 0% AAA 10% 10% AA 10.5% 20% A 11% 30% BBB 12% 40% BB 13% 50% B 14% 60% CCC 16% 70% CC 18% 80% C 20% 90% D 25% a. Using the optimal WACC approach, what is the firm's optimal debt ratio? b. Calculate the company's unlevered value, assuming that the probability of default is 5% and the company loses 30% of its value in the event of a default.AllCity, Inc., is financed 42% with debt, 5% with preferred stock, and 53% with common stock. Its pretax cost of debt is 5.7%, its preferred stock pays an annual dividend of $2.51 and is priced at $27. It has an equity beta of 1.11. Assume the risk-free rate is 2.2%, the market risk premium is 7.3% and AlICity's tax rate is 25%. What is its after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shield. The WACC is __ % ? (Round to two decimal places.)
- AllCity, Inc., is financed 37% with debt, 11% with preferred stock, and 52% with common stock. Its pretax cost of debt is 6.3%, its preferred stock pays an annual dividend of $2.46 and is priced at $35. It has an equity beta of 1.19. Assume the risk-free rate is 1.9%, the market risk premium is 6.9% and AllCity's tax rate is 25%. What is its after-tax WACC? Note: Assume that the firm will always be able to utilize its full interest tax shieldIf the financial Manager of Evergreen wants to decrease its cost of capital by adding more debt to its capital structure and arrive at a debt-equity ratio of 0.60. If its debt is in the form of a 6% semiannual bond issue outstanding with 15 years to maturity. The bond currently sells for 95% of its face value of $1000. On the other hand, suppose the risk-free rate is 3% and the market portfolio has an expected return of 9% and the company has a beta of 2. If the tax rate is 40%. Question 1 Calculate the company,s after-tax cost of debt. Question 2 Calculate the company,s cost of equity. Question 3 What would be the company’s overall cost of capital (WACC) at the targeted capital structure of debt equity ratio of 0.60? Question 4 If the company achieves this new cost of capital, would your investment decision change regarding the previous two investment opportunities? Explain your answer.A firm is currently an all equity firm that Has an annual projected EBIT of$136,900. The current cost of equity is 16.5% and the tax rate is 20%. The firm is considering $118,000 of debt with a coupon rate of 7.5% to its capital structure. The debt will be sold at a par value. What is the value of the unleavened firm (pre-debt)? A) 730,133 B) 763,570 C) 663,758 D) 696,945 E) 630,570
