Question

RLS has 30% debt in its capital structure. Currently, the levered equity beta is 1 and...

RLS has 30% debt in its capital structure. Currently, the levered equity beta is 1 and the debt beta is 0. The T-bill rate is 4% and the expected return on the market is 14%. The firm plans to issue additional debt. The debt moves the firm to its target debt level of 40%. What is the new return on equity?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Proper solution is given.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current...
US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 6%, and its tax rate is 25%. It currently has a levered beta of 1.10. The risk-free rate is 3%, and the risk premium on the market is 7.5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm’s level of debt will cause its before-tax cost of debt to increase...
7. David Ortiz Motors has a target capital structure of 20% debt and 80% equity. The...
7. David Ortiz Motors has a target capital structure of 20% debt and 80% equity. The yield to maturity on the company’s outstanding bonds is 5.7%, and the company’s tax rate is 23%. Ortiz’s CFO has calculated the company’s WACC as 10.45%. What is the company’s cost of equity capital? 8. On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $30 million in new projects....
. Firm Green’s capital structure is 30% debt and 70% equity and firm Yellow’s capital structure...
. Firm Green’s capital structure is 30% debt and 70% equity and firm Yellow’s capital structure is 50% debt and 50% equity. Both firms pay 6% annual interest on their debt. Firm Green’s shares have a beta of 1.0 and Firm Yellow’s a beta of 1.5. The risk-free interest rate is 3%, and the expected return on the market portfolio equals 8%.    (c) Discuss the impact of corporate taxes on the optimal capital structure of the firm in an otherwise...
4. Determining the optimal capital structure US Robotics Inc. has a current capital structure of 30%...
4. Determining the optimal capital structure US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 8%, and its tax rate is 25%. It currently has a levered beta of 1.10. The risk-free rate is 2.5%, and the risk premium on the market is 7.5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm’s level of debt will cause its...
Dunkin currently has a capital structure of 60 percent debt and 40 percent equity, but is...
Dunkin currently has a capital structure of 60 percent debt and 40 percent equity, but is considering a new product that will be produced and marketed by a separate division. The new division will have a capital structure of 80 percent debt and 20 percent equity. Dunkin has a current beta of 2.1, but is not sure what the beta for the new division will be. AMX is a firm that produces a product similar to the product under consideration...
Boxcars, Inc. has a capital structure consisting of $100MM in equity and $150MM in debt. With...
Boxcars, Inc. has a capital structure consisting of $100MM in equity and $150MM in debt. With this capital structure, the expected return to its equity is 18 percent, the expected return to its debt is 7 percent, and the market beta of Boxcars enterprise value is 1.68. The risk-free rate is 3 percent. The firm unexpectedly issues $110MM in new shares, using the cash to repurchase $110MM of its debt. After the repurchase, the remaining $40MM in debt is risk-free...
Company TNT currently has zero debt in its capital structure, a total market value of $60...
Company TNT currently has zero debt in its capital structure, a total market value of $60 million, and an equity beta of 0.75. The company is considering a new capital structure, by issuing $25 million worth of debt and using the proceeds to buy back $25 million worth of equity (no impact on the firms total market value). The company’s corporate tax rate is 30%. Risk free rate is 6% and market return is 14%. How much would be the...
Boxcars, Inc. has a capital structure consisting of $100MM in equity and $150MM in debt. With...
Boxcars, Inc. has a capital structure consisting of $100MM in equity and $150MM in debt. With this capital structure, the expected return to its equity is 18 percent, the expected return to its debt is 7 percent, and the market beta of Boxcars enterprise value is 1.68. The risk-free rate is 3 percent. The firm unexpectedly issues $110MM in new shares, using the cash to repurchase $110MM of its debt. After the repurchase, the remaining $40MM in debt is risk-free...
A levered firm has a target capital structure of 30 percent debt and 70 percent equity....
A levered firm has a target capital structure of 30 percent debt and 70 percent equity. The aftertax cost of debt is 5.1 percent, the tax rate is 35 percent, and the cost of equity is 13.1 percent. The firm is considering a project that is equally as risky as the overall firm. The project has an initial cash outflow of $1.2 million and annual cash inflows of $516,000 at the end of each year for 3 years. What is...
Mark IV Industries' current debt to equity ratio is 0.4; it has a (levered) equity beta...
Mark IV Industries' current debt to equity ratio is 0.4; it has a (levered) equity beta of 1.4, and a cost of equity 15.2%. Risk-free rate is 4%, the market risk premium is 8%, the cost of debt is 4%, and the corporate tax rate is 34%. The firm is in a matured business, ie. it is not growing anymore. It has long-term debt outstanding that is rolled over when it matures, so that the amount of debt outstanding does...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT