Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Optimist Company can sell common
shares at $30 per share and can
obtain debt funding at 8 percent. It
has a marginal income tax rate of 25
percent. The yield on US Treasury
securities is 3 percent. The market
risk premium is 6.0 percent, and the
firm's beta is 0.9. It has a targeted
debt-to-equity ratio of 1:1. What is
its after-tax cost of debt?
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- The beta of Kimberly – Clark firm is now 0.91 and the Debt-to-Equity ratio is 12%. Assume that Kimberly - Clark is planning to increase its Debt-to-Equity ratio to 30%. Given that the corporate tax rate is 40%, its new beta will be: A. 1.00 B. 0.86 C. 0.95 D. 1.2 E. None of the abovearrow_forwardA firm's unlevered beta is 0.5 and tax rate is 30%. If it is with 20% debt. What is the firm's levered beta? 0.9012 1.2533 0.5875 0.6235arrow_forwardA firm's stock has a beta of 1.75, Treasury bills yield 3.8%, and the market portfolio offers an expected return of 9.5%. In addition to equity, the firm finances 26% of its assets with debt that has a yield to maturity of 7.4%. The firm is in the 28% marginal tax bracket. What is the company’s after tax cost of debt?arrow_forward
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