Question
In: Finance
Firm X has a beta of 1.3 and a debt-to-equity ratio of 0.7 . It has...
Firm X has a beta of 1.3 and a debt-to-equity ratio of 0.7
.
It has deb with a coupon of 8%, face value of $1,000 and
yield-to-maturity of 12%. It has chosen firm P as a proxy company
for a new project it is considering in a totally different line of
business from its present one. Firm P has a beta of 1.6 and
debt-to-equity ratio of 0.4 and a bond with yield-to-maturity of
10%, a coupon of 12% and face value of $1,000.
Both firms are in the 40 percent marginal tax bracket. The expected
return on the S&P is 13% and the rate on 90-day Treasury bill
is 3%.
Find the required return on the new project that Firm X is
considering. Show all formulae, steps and calculations neatly and
in the proper sequence.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Firm X has a beta of 1.3 and a debt-to-equity ratio of 0.7 . It has...
Firm X has a beta of 1.3 and a debt-to-equity ratio of 0.7
.
It has deb with a coupon of 8%, face value of $1,000 and
yield-to-maturity of 12%. It has chosen firm P as a proxy company
for a new project it is considering in a totally different line of
business from its present one. Firm P has a beta of 1.6 and
debt-to-equity ratio of 0.4 and a bond with yield-to-maturity of
10%, a coupon of 12%...
Firm A has a beta of 1.3 and a debt-to-equity ratio of 0.4 and an interest...
Firm A has a beta of 1.3 and a debt-to-equity ratio of 0.4 and
an interest rate of 9% on its debt. It has chosen Firm P as a proxy
for a new line of business it is considering. Firm P has a beta of
1.6 and a debt to equity ratio of 0.8 and the expected return on
the S&P 500 is 12% and the risk-free rate is 5.5%. The marginal
tax rate is 40%.
A. Find the correct...
A firm is considering a project that is virtually risk-free. The company has a beta of 1.3 and a debt-equity ratio of.4
A firm is considering a project that is virtually risk-free. The company has a beta of 1.3 and a debt-equity ratio of.4. The appropriate discount rate to use in analyzing this project is: Multiple ChoiceThe cost of equity capital.Zero.The Treasury bill rate.An adjusted WACC based on a beta of 1.0.The firm's latest WACC.
A firm has a debt-to-equity ratio of 50%. The firm’s equity beta is 1.5 and the...
A firm has a debt-to-equity ratio of 50%. The firm’s equity beta
is 1.5 and the cost of debt is 6%. Assume the market risk premium
is 6%, the 10-year Treasury bond yield is 3%, and the corporate
income tax rate is 40%.
Estimate the firm’s WACC.
Estimate the firm’s unlevered cost of equity,
ku. (Hint: Since the debt ratio is constant,
you can assume ktax = ku.
Use Equation 3c2.)
If the firm plans to increase the debt-to-equity ratio...
If a company has a debt to equity ratio of 1.3, then the equity multiplier is...
If a company has a debt to equity ratio of 1.3, then the equity
multiplier is approximately:
1. 2.3
2. 1.3
3. 2.6
Isolation Company has debt-equity ratio of 0.7. Return on Assets is 9% and total equity is...
Isolation Company has debt-equity ratio of 0.7. Return on Assets
is 9% and total equity is 511,312. What is the Net Income
The beta of the equity of CDE Company is 1.67 and CDE has a debt-to-equity ratio...
The beta of the equity of CDE Company is 1.67 and CDE has a
debt-to-equity ratio of 0.67 calculated at market values. The debt
is risk-free and perpetual. CDE generates annual EBIT of $100 and
has 100 shares of common stock outstanding. The expected return on
the market portfolio is 15% and the risk-free interest rate is 5%.
The corporate tax rate is 30%. Assume that personal taxes and
bankruptcy costs are not relevant.
1. Compute the current market value...
MOOOHOOO Corp (MH) has debt to equity ratio of 1 and an equity beta of 1.90....
MOOOHOOO Corp (MH) has debt to equity ratio of 1 and an equity
beta of 1.90. Currently MH’s debt cost of capital is 5.5%. If MH is
considering a change: by issuing debt to buyback stock to have a
debt-equity ratio of 2 that it will maintain this ratio forever.
With this change assume MH’s cost of debt capital will be 6% and
their tax rate is 35%. If the expected market return is 9% and the
risk free rate...
A semiconductor company has an equity beta of 1.8, a debt-to-equity ratio of 0.05, an average...
A semiconductor company has an equity beta of 1.8, a
debt-to-equity ratio of 0.05, an average cost of debt of 6.0% p.a.,
and an effective income tax rate of 12%. The current rate on
long-term U.S. government Treasury Bills is 2.2% p.a. The market
risk premium (R M -R F ) pertaining to a diversified portfolio of
corporate common stock is about 8.4% p.a. Estimate this company’s
cost of equity and its weighted average cost of capital. If the
company...
A firm is financed with debt that has a market beta of 0.3 and equity that...
A firm is financed with debt that has a market beta of 0.3 and
equity that has a market beta of 1.2. The risk-free rate is 3%, and
the equity premium is 5%. The overall cost of capital for the firm
is 8%. What is the firmʹs debt-equity ratio?
a) 28.6%
b) 25.0%
c) 74.8%
d) 25.2%
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