North Pole and South Pole are competitors in the same Industry, Both companies face a 22 % Income tax rate. Both con es are levered. (North Pole and South Pole had the same equity Betas, 1.17, when they were still unlevered.) Their capital structures look like this: North Pole South Pole Debt S 3,020, 000 S 3,930,000 Equity S 3,930,000 S 3,020,000 For both companies, the Betas for their debt is zero. Additional information about the market: The market portfolio's expected retum is 12 %. The T-bill rate is 4 %. a. What is the Beta of equity for North Pole and South Pole? (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. In addition, calculate the required return on equity that would correctly reflect the level of systematic risk. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
North Pole and South Pole are competitors in the same Industry, Both companies face a 22 % Income tax rate. Both con es are levered. (North Pole and South Pole had the same equity Betas, 1.17, when they were still unlevered.) Their capital structures look like this: North Pole South Pole Debt S 3,020, 000 S 3,930,000 Equity S 3,930,000 S 3,020,000 For both companies, the Betas for their debt is zero. Additional information about the market: The market portfolio's expected retum is 12 %. The T-bill rate is 4 %. a. What is the Beta of equity for North Pole and South Pole? (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. In addition, calculate the required return on equity that would correctly reflect the level of systematic risk. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter17: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
Problem 7P
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North Pole and South Pole are competitors in the same Industry, Both companies face a 22 % Income tax rate. Both con es are levered. (North Pole and South Pole had the same equity Betas, 1.17, when they were still unlevered.) Their capital structures look like this: North Pole South Pole Debt S 3,020, 000 S 3,930,000 Equity S 3,930,000 S 3,020,000 For both companies, the Betas for their debt is zero. Additional information about the market: The market portfolio's expected retum is 12 %. The T-bill rate is 4 %. a. What is the Beta of equity for North Pole and South Pole? (Do not round Intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. In addition, calculate the required return on equity that would correctly reflect the level of systematic risk. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
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