Problem on leveraged beta
AB Restaurants has debt/equity ratio .25, and its leveraged beta is 1.5. Its tax rate is 30%, and its cost of equity is 15%. The risk-free rate is 5%. CD Restaurants has debt/equity ratio .4, and tax rate 35%. Find the cost of equity for CD.
Expert
AB’s Cost of equity = 15% = 5% + 1.5 (Rm - 5%)1.5 Rm = 17.5%Rm = 11.67%Bu = BL/(1 + (1 – T)(D/E)) = 1.5/(1 + (1 – 0.3)(0.25) = 1.5/1.175 = 1.277
Hence with a D/E ratio of 40%,
BL = BU (1 + (1 – T)(D/E)) = 1.277 (1 + (1 – 0.35)(0.4)) = 1.61
Cost of equity = 5% + 1.61*(11.67% - 5%) = 15.72%
Straddle & Strangle: In the case of shorting butterfly spread, it can be seen that the gains are limited. However, there exists another strategy known as straddle which produces unlimited gains. This strategy benefits when the trader expects that
A financial consultant is valuing the company I set as an objective (an entertainment centre) by discounting the cash flows until the end of the dealership at 7.26% (interest rate on 30-year-bonds = 5.1%; market premium = 5%, and Beta = 0.47%). 0.47 is a beta provided
ABC Corp. has a challenge: The CEO wants to set aside annual, end of year payments into a sinking fund account earning 5% over the next 6 years in order to retire $25 million in bonds that will be outstanding at that time. Determine the annual payment required each ye
Why do a Split?
Assuming a company needs to distribute money to shareholders of it, is this better to repurchase shares or to distribute dividends?
Is this possible to use a constant WACC in the valuation of a company along with a changing debt?
Is the depreciation is the loss of value of fixed assets?
Your Corp, Inc.'s data is as follows:Beta; 1.30Recent dividend; $.90Expected dividend growth; 7%Expected return of the market; 14%Treasury Bills are yielding; 4%Most recent stock price; $65 A] Us
AB Corporation has 16% cost of equity, 35% tax rate, and debt-to-equity ratio of 30%. XY Corporation has 30% tax rate and debt-to-equity ratio of 40%. Both AB and XY are in the same business of selling automotive parts. If the riskless rate is 4% and the expected retu
Who explained put–call parity?
18,76,764
1938730 Asked
3,689
Active Tutors
1437618
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!