Question

STM has a levered beta of 2.5. It's market cap is $4 million, and it has...

STM has a levered beta of 2.5. It's market cap is $4 million, and it has 1.5 million in outstanding debt. The risk-free rate is 5% and the market risk premium is 6%. the tax rate is 30%. How much is the un-levered cost of equity?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Levered Beta = 2.5

Equity (Market Cap) (E) = $4 million

Debt(D) = 1.5 million

Tax rate (t) = 30%

Calculation of Un-levered Beta:

where

Bu = un-levered beta

BL = levered beta

putting the values:

Risk free rate = 5%

Market risk premium = 65

Calculation of un-levered cost of equity (Keu):

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
Given the following information, calculate the company’s WACC. Market Cap 3,200 BV of Equity 1,800 BV...
Given the following information, calculate the company’s WACC. Market Cap 3,200 BV of Equity 1,800 BV of Debt 1,200 MV of Debt 950 Cost of Debt 8.50% Unlevered beta 1.28 Levered beta 1.50 Equity risk premium 6.50% Risk free rate 2.50% Tax rate 25%
Lister Inc. is a small, publicly traded data processing company that has $200 million in debt...
Lister Inc. is a small, publicly traded data processing company that has $200 million in debt outstanding, in both book value and market value terms. The book value of equity in the company is $400 million and there are 40 million shares outstanding, trading at $20/share. The current levered beta for the company is 1.15 and the company’s pre-tax cost of borrowing is 5%. The current risk-free rate in US $ is 3%, the equity risk premium is 5% and...
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...
Suppose the market cap of Tired Hands Brewery is $40 million and the market value of...
Suppose the market cap of Tired Hands Brewery is $40 million and the market value of its debt is $10 million. Assume that the company's stock has a beta of 1.2 and its debt is risk free. The current T-bill rate is 5%, the expected market risk premium is 10%, and the tax rate is 40%. Tired Hands is deciding between two mutually exclusive projects. The company could either invest in an expansion project that involves setting up a brewery...
SIROM Scientific Solutions has equity with a market value of $10 million and $5 million of...
SIROM Scientific Solutions has equity with a market value of $10 million and $5 million of bank debt. The bank debt costs 6% per year. The estimated equity beta is 2. If the market risk premium is 8% and the risk-free rate is 3%, compute the WACC if the firm’s tax rate is 21%. 14.25% 13.83% 12.93% 12.66%
Problem 1 (30 marks) Gamma Medical Company is currently an un-levered firm with a beta of...
Problem 1 Gamma Medical Company is currently an un-levered firm with a beta of 1.3925. Government of Canada T-bills are yielding 3% and the market risk premium is 8%. You expect the company will be able to earn the required rate of return forever on an expected before tax earnings of $800,000 per year. 1.      Assume that the tax rate is 40% and there is no cost for the risk of default. a)        Calculate the required rate of return for...
Lister Inc. is a small, publicly traded data processing company that has $200 million in debt...
Lister Inc. is a small, publicly traded data processing company that has $200 million in debt outstanding, in both book value and market value terms. The book value of equity in the company is $400 million and there are 40 million shares outstanding, trading at $20/share. The current levered beta for the company is 1.15 and the company’s pre-tax cost of borrowing is 5%. The current risk-free rate in US $ is 3%, the equity risk premium is 5% and...
Consolidated Appliances has a Beta of 0.85, the risk-free interest rate is 2.5%, and the equity...
Consolidated Appliances has a Beta of 0.85, the risk-free interest rate is 2.5%, and the equity risk premium is 5.5%. The yield to maturity on Consolidated Appliances debt is 4.65%. The company is financed 58% with equity, and 42% with debt, and has a tax rate of 21%. What is the WACC for consolidated Appliances? Please use excel, this is how I need to answer it and it's confusing to me
Luna Corporation has a beta of 1.5, £10 billion in equity, and £5 billion in debt...
Luna Corporation has a beta of 1.5, £10 billion in equity, and £5 billion in debt with an interest rate of 4%. Assume a risk-free rate of 0.5% and a market risk premium of 6%. Calculate the WACC without tax. Queen Corporation has a debt-to-equity ratio of 1.8. If it had no debt, its cost of equity would be 16%. Its current cost of debt is 10%. What is the cost of equity for the firm if the corporate tax...
Isabella Publishing's tax rate is 21%, its beta is 1.40, and it currently has no debt....
Isabella Publishing's tax rate is 21%, its beta is 1.40, and it currently has no debt. The CFO is considering moving to a capital structure with 25% debt and 75% equity and using the newly raised capital to repurchase shares of the common stock. If the risk-free rate is 4.5% and the market risk premium is 7.0%, by how much would the cost of equity for the levered firm increase, compared to the cost of equity of the unlevered firm?...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT