Question
In: Finance
Ethier Enterprise has an unlevered beta of 1.3. Ethier is financed with 40% debt and has a levered beta of 1.7
Premium for Financial Risk
Ethier Enterprise has an unlevered beta of 1.3. Ethier is financed with 40% debt and has a levered beta of 1.7. If the risk free rate is 4% and the market risk premium is 6%, how much is the additional premium that Ethier's shareholders require to be compensated for financial risk? Round your answer to two decimal places.
%
Solutions
Expert Solution
Expected return = risk free rate + beta * market risk premium
without debt
required return = 4% + 1.3 * 6%
= 11.8%
with debt
required return = 4% + 1.7 * 6%
= 14.2%
additional premium = 14.2% - 11.8%
= 2.4%
jeff jeffy answered 2 years agoRelated Solutions
Ethier Enterprise has an unlevered beta of 1.15. Ethier is financed with 45% debt and has...
Ethier Enterprise has an unlevered beta of 1.15. Ethier is
financed with 45% debt and has a levered beta of 1.35. If the risk
free rate is 4% and the market risk premium is 5%, how much is the
additional premium that Ethier's shareholders require to be
compensated for financial risk? Round your answer to two decimal
places.
Ethier Enterprise has an unlevered beta of 1.15. Ethier is financed with 35% debt and has...
Ethier Enterprise has an unlevered beta of 1.15. Ethier is
financed with 35% debt and has a levered beta of 1.35. If the risk
free rate is 6% and the market risk premium is 4%, how much is the
additional premium that Ethier's shareholders require to be
compensated for financial risk? Round your answer to two decimal
places.
Premium for Financial Risk Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with...
Premium for Financial Risk Ethier Enterprise has an unlevered
beta of 1.0. Ethier is financed with 40% debt and has a levered
beta of 1.4. If the risk free rate is 5.5% and the market risk
premium is 4%, how much is the additional premium that Ethier's
shareholders require to be compensated for financial risk? Round
your answer to one decimal place. %
Premium for Financial Risk Ethier Enterprise has an unlevered beta of 1.25. Ethier is financed with...
Premium for Financial Risk Ethier Enterprise has an unlevered
beta of 1.25. Ethier is financed with 55% debt and has a levered
beta of 1.75. If the risk free rate is 6% and the market risk
premium is 6%, how much is the additional premium that Ethier's
shareholders require to be compensated for financial risk? Round
your answer to two decimal places. %
Bailey and Sons has a levered beta of 1.10, its capital structure consists of 40% debt...
Bailey and Sons has a levered beta of 1.10, its capital
structure consists of 40% debt and 60% equity, and its tax rate is
25%. What would Bailey's beta be if it used no debt, i.e., what is
its unlevered beta?
For a levered firm, firm’s assets are financed by equity and debt. That is, ?? =...
For a levered firm, firm’s assets are financed by equity and
debt. That is, ?? = ?? + ?? , where ?? ,?? & ?? represents
asset value, debt value and equity value at time ?. Suppose the
firm makes no dividend payment and has a zero-coupon debt maturing
at time ?. At maturity, if the value of the company asset is
greater than the maturity value of the debt (?? > ??), the
company will simply pay off the...
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%
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 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...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Draw a DFA for the following ( ∑ = {0,1}): Set of all strings with.
- In the article from Forbes notes that the goal of a leader is not to clone...
- Many people keep time using a 24 hour clock (11 is 11am and 23 is 11pm,...
- UNIX ONLY -- DIFFICULT LAB ASSIGNMENT This is an extremely difficult subject for me. Could you...
- Do you know why your credit card can be refused even though you are profitable?
- The Following Java expression: S/10 * 10 + 10 – S = C Show that this...
- Year Cash Flow 0 −$9,700 1 5,800 2 2,500 3 3,400 &nb
ADVERTISEMENT