Question

Tri Co. has the following cost of debt structure: The market risk premium is 4.5%, the...

  1. Tri Co. has the following cost of debt structure: The market risk premium is 4.5%, the risk free rate is 5%, beta of unleveraged firm is 1.20, Hamada’s equation b= bU [1 + (1 - T)(wd/we)]. T=40%.

Please use the above information to answer following questions:

wd

0%

20%

30%

40%

50%

rd

0.0%

9.0%

10.0%

11.0%

12.0%
  1. If the firm uses 50% debt, what is the cost of equity of the firm, based on CAPM model?

Cost of Equity = Risk free Rate + (Beta * Market Risk Premium)

  1. What is WACC of the firm?
  2. If FCF0 = 200 million, g=4%, what is the firm value?
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