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 1.7
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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 theCAPM , is 14% and its tax rate is 20%. Find the firm’s current leveraged beta using the CAPM1.0
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- LG Co. is trying to estimate its optimal capital structure. Right now, LG has a capital structure that consists of 20 percent debt and 80 percent equity, based on market values. (Its D/S ratio is 0.25.) The risk-free rate is 4 percent and the market risk premium, rM – rRF, is 5 percent. Currently the company’s cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. What would be LG’s unlevered beta and estimated cost of equity if it were to change its capital structure to 40 percent debt and 60 percent equity? [Use Hamada equation] Group of answer choices 1.60, and 10.84% 1.39, and 13.74% 1.39, and 15.24% 1.60, and 14.34% 1.95 and 18.72% 1.15, and 11.28%Simon Software Co. is trying to estimate its optimal capital structure. Right now, Simon has a capital structure that consists of 20 percent debt and 80 percent equity, based on market values. (Its D/S ratio is 0.25.) The risk-free rate is 6 percent and the market risk premium, rM - rRF, is 5 percent. Currently the company's cost of equity, which is based on the CAPM, is 12 percent and its tax rate is 40 percent. Find the new levered beta given the new capital structure (if it were to change its capital structure to 50 percent debt and 50 percent equity) using the Hamada equation. O 1.67 O 0.81 O 1.00 O 1.22 O 1.45Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 30% long-term debt, 10% preferred stock, and 60% common stock equity (retained earnings, new common�� stock, or both). The firm's tax rate is 23%. Debt : The firm can sell for $1030 a 14-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock: 9.00% (annual dividend) preferred stock having a par value of $100 can be sold for $92.An additional fee of $2 per share must be paid to the underwriters. Common stock: The firm's common stock is currently selling for $90 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.00 ten years ago to the $3.26 dividend payment, D0, that the company just recently made.…
- A company is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, rRF, is 6%; the market risk premium, RPM, is 6%; and the firm's tax rate is 40%. Currently, the company’s cost of equity is 14%, which is determined by the CAPM. What would be the companies estimated cost of equity if it changed its capital structure to 50% debt and 50% equity? Round your answer to two decimal places. Do not round intermediate steps.Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 30% long-term debt, 10% preferred stock, and 60% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 23%. Debt : The firm can sell for $1030 a 14-year, $1,000-par-value bond paying annual interest at a 8.00% coupon rate. A flotation cost of 2% of the par value is required. Preferred stock: 9.00% (annual dividend) preferred stock having a par value of $100 can be sold for $92.An additional fee of $2 per share must be paid to the underwriters. Common stock: The firm's common stock is currently selling for $90 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.00 ten years ago to the $3.26 dividend payment, D0, that the company just recently made.…i Johnson, Inc. is trying to estimate its optimal capital structure. Right now, the firm has a capital structure that consists of 23% debt and 77% equity. The risk free rate is 4% and the market risk premium is 6%. Currently the company's cost of equity, which is based on the SML, is 12.5% and its tax rate is 40%. What would be the firm's estimated cost of equity if it were to change its capital structure to 30% debt and 70% equity. a. 11.21% b. 10.76% C. 18.05% d. 12.01% e. 13.06%
- 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 LeviHardware 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.What would be Hardware Co.’s estimated cost of equity if it will shift its capital structure to 50% debt and 50% equity funded?Currently, Forever Flowers Inc. has a capital structure consisting of 30% debt and 70% equity. Forever's debt currently has an 7% yield to maturity. The risk-free rate (rRF) is 4%, and the market risk premium (rM - rRF) is 5%. Using the CAPM, Forever estimates that its cost of equity is currently 13%. The company has a 25% tax rate. What is Forever's current WACC? Round your answer to two decimal places. % What is the current beta on Forever's common stock? Round your answer to two decimal places. What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, bU?) Do not round intermediate calculations. Round your answer to two decimal places. Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 9.5%. The proposed change will have no effect on the…
- 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?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?Give typing answer with explanation and conclusion A company has an expected EBIT of $18,000 in perpetuity, a tax rate of 35%, and a debt-to- equity ratio of 0.75. The interest rate on the debt is 9.5%. The firm’s WACC is 9%. a) If the company has not debt, what would be the unlevered cost of capital and firm value? b) Suppose now the company has $55,714.29 in outstanding debt. Using your answer to part a) and M&M Proposition I with taxes, what is the value of this levered firm?