Currently, Sky corp. has a capital that is 70% equity funded. The company has a 30% tax rate. The beta unlevered of Sky corp. is 1.0. What would be the company’s levered beta if Sky Co. changed its capital structure to 80% equity funded? Answer format: "Levered beta = x.xx. [Insert short comment]"
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Problem B
Currently, Sky corp. has a capital that is 70% equity funded. The company has a 30% tax rate. The beta unlevered of Sky corp. is 1.0. What would be the company’s levered beta if Sky Co. changed its capital structure to 80% equity funded?
Answer format:
"Levered beta = x.xx. [Insert short comment]"
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- Assume there are two firms with a MV of $50,000,000. Firm A consists of 10% debt and 90% equity. Firm B consists of 40% debt and 60% equity. Assume perfect capital markets and M&M Proposition 2 holds. Which firm will have a higher expected return for equity holders? Why? For the toolhar prace ALT+F10/PC or ALT+FN+F10 (Mac).Reactive Power Generation has the following capital structure. Its corporate tax rate is 21%. Required Rate of Return 4% 6 10 Security Debt Preferred stock Common stock Market Value $ 30 million 30 million 40 million What is its WACC? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. WACC Answer is complete but not entirely correct. 7.29%Case 2: Cost of capital. a. Bellevue is a hotel company. It currently has a total enterprise value of 500, debt outstanding for 200, an which it pays cost of debt equal to 5%. You have also estimated that its beta of equity is 0.8, and the company faces a corporate tax of 25%. The risk-free rate you observe in the market is 3%, and you estimate the equity risk premium to be 6% What is Bellevue Warc? b. Suppose that Bellevue ints to expand its activity by taking over a restaurant company. You find three compa in the restaurant industry (Eatout, Goodfood and Dinein) that are listed in a stock exchange, so that you can gather relevant financial information. Bellevue is planning to fund the acquisition with the same capital structure of its main hotel business (ie =40%). Assuming that the corporate tax is 25%, the risk free rate is 3% and the equity risk premium is 6%, calculate the WACC that Bellevue should use for analyzing its planned investment in the restaurant industry.…
- Case 2: Cost of capital. a. Bellevue is a hotel company. It currently has a total enterprise value of 500, debt outstanding for 200, on which it pays cost of debt equal to 5%. You have also estimated that its beta of equity is 0.8, and the company faces a corporate tax of 25%. The risk-free rate you observe in the market is 3%, and you estimate the equity risk premium to be 6%. What is Bellevue Wacc? b. Suppose that Bellevue wants to expand its activity by taking over a restaurant company. You find three companies in the restaurant industry (Eatout, Goodfood and Dinein) that are listed in a stock exchange, so that you can gather relevant financial information. Bellevue is planning to fund the acquisition with the same capital structure of its main hotel business (i.e.: D/EV=40%). Assuming that the corporate tax is 25%, the risk free rate is 3% and the equity risk premium is 6%, calculate the WACC that Bellevue should use for analyzing its planned investment in the restaurant industry.…which one is correct please confirm? QUESTION 5 Heleveton Industries is 100% equity financed. Its current beta is 1.1. The expected market risk premium is 8.5%, and the risk-free rate is 4.2%. If Heleveton changes its capital structure to 25% debt, it estimates its beta will increase to 1.2. If the after-tax cost of debt will be 6%, should Heleveton make the capital structure change? a. Yes, cost of capital decreases 1.67% b. No, cost of capital increases by 0.85% c. Yes, cost of capital decreases by 2.52% d. No, stock price would decrease due to increased riskQ1. A Corporation is trying to determine its optimal capital structure using the following table.The company estimates that the risk-free rate is 5%, the market risk premium is 6%, and its tax rate is 40%. Itestimates that if it had no debt, its beta, would be 1.2. Based on the information, what is the firm’s optimal capitalstructure, and what would the WACC be at the optimal capital structure?
- ABC Company currently has a capital structure consisting of 41% debt and the remaining as equity, a levered beta of 1.65, and its tax rate is 40%. The company is considering to adopt a new capital structure of 34% debt and the remaining as equity. What would the company’s new levered beta be under the new capital structure? Round your answer to two decimal places. (Hint: Use the Hamada equation.) Group of answer choices 1.54 1.52 1.50 1.57 1.48Reactive Power Generation has the following capital structure. Its corporate tax rate is 21%. Required Rate of Return Security Market Value Debt $ 30 million 4% Preferred stock 30 million Common stock 40 million 10 What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC %M12-15. Estimating Cost of Equity Capital Assume that a company’s market beta equals 0.6, the risk-free rate is 5%, and the market return equals 13%. Compute the company’s cost of equity capital. Round answer to one decimal place (ex: 0.0245 = 2.5%) Answer%
- You have been tasked with the responsibility of calculating the WACC for Meeks Investments Limited and Hall Developments Limited. The risk-free rate is currently 4% and the market risk premium is 6.5%. The details for both companies are presented in the table below. The tax rate is 25%. Meeks Investments Limited Hall Developments Limited Value of Common Equity $1,500,000 $3,000,000 Beta 2.18 1.52 Value of Preferred Equity $1,000,000 $500,000 Preferred Dividends $4.50 $7.60 Price of Preferred Stock $60 $80 Price of Bonds $970 $1,160 Coupon Rate (Paid semi-annually) 8% 11% Par Value of Bonds $1,000 $1,000 Years to Maturity 8 12 Value of Debt $2,500,000 $1,500,000 Use the information in the table above to calculate the WACC for both companies.Calculate the company's asset beta, if the firm's equity beta is 1.6, the debt equity ratio is 0.6 and the marginal tax rate is 30%. Select a O O 1.1268 2.1268 O 1.2618 2.216Ch.13. The Pencil Company is currently all equity and has a beta of 0.8. The form has decided to move to a capital structure of one part debt to two parts equity. Because the firm is staying in the same industry, its asset beta should remain at 0.8. Assuming a zero beta, what is the equity beta? Round to one place past the decimal point as "X.X"