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%
The National Company responsible for the company where he work has newly published a document stating as that the levered beta of the sector of energy transportation is as 0.471870073 (it is 9 decimals). They acquired this number by considering the betas into the sect
Benefits of Cash to cash analysis: The benefits of Cash to cash analysis are as following: 1. Helps in better cash management situation thus, increasing liquidity. 2. The cash a
Does the equity of shareholders represents the savings a company has accumulated by the years?
What is a 3 x 1 Split?
Who published a book regarding option formula and risk neutrality?
Is book value the excellent proxy to the value of the shares?
Project Financing: It is the procedure of determining how to go around obtaining the resources needed in managing the costs related with the launch and continuing operation of a project. Whereas this procedure sometimes comprises the re-allocation of
You have been given the following information on two corporations; you are to assume that thesecurities are correctly priced. My Corp, Inc. has a Beta of 1.25 and an Expected Return of .145;Your Corp, Inc. has a Beta of .75 and an Expected Return of .095. Based on the
The concept of conservatism has been influential in the development of accounting theory and practice. A major effect of conservatism is that accountants tend to recognize losses but not gains. For example, when the value of an asset is impaired, it is wri
Define the term Vanilla Bonds regarding Corporate Bonds?
18,76,764
1931214 Asked
3,689
Active Tutors
1449236
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!