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%
Who published a book regarding option formula and risk neutrality?
Is there any relationship in between the flow to shareholders and the net income?
Please assist with the attached Data Case assignment
A court assigned to me (as an auditor and economist) a valuation of a market butcher’s. The butcher’s did not give any simple income statements or any valuable information that I could use in my valuation. This is a small business with just two workers, th
Does the equity of shareholders represents the savings a company has accumulated by the years?
Which determines the shape of the term structure of Interest rates?
Iterative System Solvers, Power Methods, and the Inverse Power Method for Boundary Value Problems. 1. Code and test Jacobi and Gauss-Sidel solvers for arbitrary diagonally dominant linear systems. 2. Compare performance/results with tridiagonal Gaussian elimination so
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.
Explain how companies with substandard financial history can draw the attention of investors. Are investors irrational or naive?
Explain the working of breakthrough in low-discrepancy sequences used for option valuation.
18,76,764
1950428 Asked
3,689
Active Tutors
1441674
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!