Question
In: Finance
1.) You are evaluating a privately-held target firm with a 25% marginal tax rate and a...
1.) You are evaluating a privately-held target firm with a 25% marginal tax rate and a targeted capital structure of 20% debt and 80% equity. You have identified a comparable firm with an equity beta of 1.34. The comparison firm has a marginal tax rate of 30% and a D/E ratio of 0.5. What is your estimate of the equity beta of the target firm?
2.) Suppose you are using industry average betas to estimate the cost of equity for your firm. The average beta (estimated from market model regressions of stock returns) for the 124 firms in the industry is 1.18, the average market value based debt-to-equity ratio is 21.2%, the average cash-to-firm value ratio is 2.8%, and the median enterprise value-to-EBITDA ratio for firms in the industry is 10.2x.
a. What is the industry average cash-adjusted unlevered beta? Assume a tax rate of 21% for firms in this industry.
b. Your firm has LTM EBITDA of $15.2 million, cash of $7.1 million, and total debt of $28.6 million. Your firm’s marginal tax rate is 18%. What is your estimate of the equity beta for your firm?
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jeff jeffy answered 1 year agoRelated Solutions
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Private Corp. is a privately held firm that builds and sells widgets globally. The business has...
Private Corp. is a privately held firm that builds and sells
widgets globally. The business has prospered in the last few years,
but the owners are afraid the growth may be slowing down. To that
end, the Finance division started looking at competitors and came
up with the following table:
EPS
Dividends/Share
Stock Price
ROE
R
Debt Rating
Yield
ABC Corp.
$1.30
$0.16
$25.34
8.50%
8.00%
AA
3.15%
XYZ Inc.
$1.95
$0.23
$29.85
10.50%
13.00%
A
3.56%
Widgets Inc.
-$0.37...
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PLEASE USE FINNACE CALUATLER FOR ANSWER IF NOT USE BASIC
CALUATOR...
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