Calculate each firm cost of equity

Reference no: EM131935691

Question: The asset beta for a particular industry is 0.75. Use Equation 9.6 to estimate the equity betas for the following three firms based on their respective debt ratios and tax rates. Then calculate each firm's cost of equity assuming an expected market premium of 8% and a risk-free rate of 3%.

Firm A: 55% debt ratio and 25% tax rate

Firm B: 25% debt ratio and 35% tax rate

Firm C: 70% debt ratio and 45% tax rate

Calculate:

1. Beta (Firm A), to four decimal places

2. Beta (Firm B), to four decimal places

3. Beta (Firm C), to four decimal places

4. Discount Rate (Firm A), to three decimal places

5. Discount Rate (Firm B), to three decimal places

6. Discount Rate (Firm C), to three decimal places

Reference no: EM131935691

Questions Cloud

What is the firm balance of current assets : Asset Management and Profitability Ratios You have the following information on Universe lt Ts, Inc.: sales to working capital = 14 times.

The nonprofit and for-profit setting : Write a paper evaluating the 3 strengths and 3 weaknesses of geriatric case management in a nonprofit versus for-profit setting of your choice.

Create a brief outline for Medical App : Create a brief outline for your Final Project. Topic: I have thought about medical App that could help people to increase their health knowledge

Physical growth with that amount of stores : For Marshalls company, - If there has been physical growth with that amount of stores in the last year, two years, etc.

Calculate each firm cost of equity : The asset beta for a particular industry is 0.75. Use Equation 9.6 to estimate the equity betas for the following three firms based on their respective debt.

What values do you see reflected in the statement : Find an organization with a mission and/or vision statement. What values do you see reflected in the statement?

Compute the tax loss on the sale and the related tax benefit : Compute the tax loss on the sale and the related tax benefit if the asset is sold now for $13,060. (Input all amounts as positive values).

What is the maximum amount of cost that can be deducted : An asset (not an automobile) put in service in June 2015 has a depreciable basis of $2,035,000 and a recovery period of 5 years. Assuming bonus depreciation.

What is the expected rate of return of the asset : An asset has a 15% chance of a -10% return, a 25% chance of a 0% return, a 25% chance of a 5% returns, and a 35% chance of a 20% return.

User Account

All Pages