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%
Write Efficient Market Hypotheses in brief?
Does it make any sense to compute betas against local indexes while a company has a great part of its operations outside such local market? I have two illustrations: BBVA and Santander.
Below are the three-month HIBOR and three-year EFN futures (that is, Exchange Fund Note) prices for the September 2010 contracts.a) Find out the HIBOR in three-months for settling the future contract utilizing the quotation on August 16. Q : Calculating Beta when market A company with a market capitalization of $100 million has no debt and a beta of 0.8. What will its beta be after it borrows $50 million (giving that there are no other changes and no taxes)?
A company with a market capitalization of $100 million has no debt and a beta of 0.8. What will its beta be after it borrows $50 million (giving that there are no other changes and no taxes)?
Is this possible to make money in the stock market while the quotations are going down? And what is credit sale?
Johnathan Lewis is looking into the possibility of buying several coin-operated vending machines and put them in local hospitals. Each machine costs $2000, that he will depreciate on a straight-line basis over 8 years. The machine will dispense soft-drink cans at 75 c
A company currently pays a dividend of $3.75 per share, D0 = 3.75. It is estimated that the company's dividend will grow at a rate of 15% percent per year for the next 2 years, then the dividend will grow at a constant rate of 7% the
There are four methods a company can utilize the money this generates: a) Buying other assets or companies; b) Reducing debt of it; c) Distribute this to shareholders, and d) Increasing cash holdings of it.
Assuming a company needs to distribute money to shareholders of it, is this better to repurchase shares or to distribute dividends?
XYZ explained the difference between intrinsic value and book value in terms of the money spent on a college education. Please provide another example using a different simile.
18,76,764
1951929 Asked
3,689
Active Tutors
1441174
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!