Digital Comany 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.
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Digital Comany 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.
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- 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.Hardware Co. is estimating its optimal capital structure. Hardware Co. has a capital structure that consists of 80% equity and 20% debt and a corporate tax rate of 40%. Based on the short-term treasury bill rates the risk-free rate is 6% and the market return is 11%. Hardware Co. computed its cost of equity based on the CAPM – 12%. The company will shift its capital structure to 50% debt and 50% equity funded. 1. What is the levered beta on the capital structure of 50% debt and 50% equity funded?You want to estimate the Weighted Average Cost of Capital (WACC) for Levi Inc. The company’s tax rate is 21% and it has the equity beta of 1.24. Its debt value is $2,304 million and the equity market value is $70,080 million. The company’s interest expense is $83 million. Assume that the risk-free rate is 5% and the market return is 12%. Based on the information, compute the WACC for Levi
- Blake Inc. has a leveraged beta of 1.10, a capital structure made up of 40% debt and 60% equity, and a tax rate of 30%. What is Blake's unlevered beta?U.S. 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 45%. It currently has a levered beta of 1.15. The risk-free rate is 2.5%, and the risk premium on the market is 7%. U.S. 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%. Use the Hamada equation to unlever and relever the beta for the new level of debt. What will the firm’s weighted average cost of capital (WACC) be if it makes this change in its capital structure? (Hint: Do not round intermediate calculations.) The optimal capital structure is the one that the WACC and the firm’s stock price. Higher debt levels the firm’s risk. Consequently, higher levels of debt cause the firm’s cost of equity to .Hardware Co. is estimating its optimal capital structure. Hardware Co. has a capital structure that consists of 80% equity and 20% debt and a corporate tax rate of 40%. Based on the short-term treasury bill rates the risk-free rate is 6% and the market return is 11%. Hardware Co. computed its cost of equity based on the CAPM – 12%. The company will shift its capital structure to 50% debt and 50% equity funded.1. What is the current beta of Hardware Co.’s equity? 2. What is the unlevered beta of Hardware Co.? 3. What is the levered beta on the capital structure of 50% debt and 50% equity funded? 4. What would be Hardware Co.’s estimated cost of equity if it will shift its capital structure to 50% debt and 50% equity funded?
- You are going to value Lauryn’s Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.4, a debt-to-equity ratio of .5, and a tax rate of 21 percent. Assume a risk-free rate of 4 percent and a market risk premium of 9 percent. Lauryn’s Doll Co. had EBIT last year of $42 million, which is net of a depreciation expense of $4.2 million. In addition, Lauryn's made $6 million in capital expenditures and increased net working capital by $1.0 million. Assume the FCF is expected to grow at a rate of 3 percent into perpetuity. What is the value of the firm? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)A 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 rate (rRF) is 5% and the market risk premium (rM – rRF) is 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 1.7Suppose Mechis Technologies has a capital structure of 40% equity and 60% debt with the following information: a Beta of 0.7, Market Risk Premium of 5%. Mechis's average long term debt pays a 5% annual coupon with fifteen years to maturity, currently selling for $980 (face value of $1,000). If Mechis's tax rate is 15% and the risk free rate is 3%, what is the Weighted Average Cost of Capital?
- Wentworth Industries is 100 percent equity financed. Its current beta is 1.0. The expected market rate of return is 13 percent and the risk-free rate is 9 percent. Round your answers to two decimal places. Calculate Wentworth’s cost of equity. % If Wentworth changes its capital structure to 20 percent debt, it estimates that its beta will increase to 1.2. The after-tax cost of debt will be 7 percent. Should Wentworth make the capital structure change? Based on the weighted cost of capital of %, the capital structure (should be/should not be) changed.Larson Corporation has a beta of 1.7 and a marginal tax rate of 35%. The expected return on the market is 12% and the risk-free interest rate is 7%. Estimate the firm's cost of internal equity.Adamson Corporation is considering fouraverage-risk projects with the following costs and rates of return: The company estimates that it can issue debt at a rate of rd = 10%, and its tax rate is 30%. Itcan issue preferred stock that pays a constant dividend of $5.00 per year at $50.00 per share.Also, its common stock currently sells for $38.00 per share; the next expected dividend, D1,is $4.25, and the dividend is expected to grow at a constant rate of 5% per year. The targetcapital structure consists of 75% common stock, 15% debt, and 10% preferred stock.a. What is the cost of each of the capital components?b. What is Adamson’s WACC?c. Only projects with expected returns that exceed WACC will be accepted. Whichprojects should Adamson accept?