Question

The assignment is in the word document below. Please provide a clean, clearly written solution to it in excel. The document needs to be self explanatory for anyone who reads it. 20% of the grade is allocated to clarity of the calculations and steps. If it is confusing I'd take points off because good communication is of paramount significance.

Write down the formulas you are using clearly before proceeding to use them and plug the numbers in it.

This is a multi-step problem. Make sure every intermediate step is clearly written and calculated and the final result of each step is highlighted before moving to the next step.

                                                              The BETA and leverage

In the following assume risk free rate is 5% and market risk premium is 6%.

Assume also marginal tax rate is 40%.

If cost of equity for a company with 25% debt [ meaning D/ E = 25%/75%]

is 14%, what is the cost of equity for same company with 50% debt [meaning D/ E = 50%/ 50%]?

Answer 1