Calculate the beta and cost of capital of levered equity

Assignment Help Financial Management

Reference no: EM131995961

Suppose an unlevered firm with the following data:

Number of outstanding shares, N0 = 10 million

Share price, P0 = $10.00

The company cash flow at the end of the year depends on the market conditions as follows:

State of the economy Probability Cash flow in million USD Market return

Good---------------------- 60%--------- 130-------------------- 20%

Bad------------------------ 40%--------- 80---------------------- -8%

Assume the CAPM holds. Calculate the unlevered beta and risk-free rate.

Now, suppose the company plans to issue debt to buy back shares as follows:

The present value of debt, D = $60.00 million. Is the debt risk-free?

How many shares will the company be able to buy back?

Calculate the beta and cost of capital of levered equity.

Reference no: EM131995961

Questions Cloud

Who will favour the opening of the car market to trade : The economy opens to trade. The world price of cars is 18 units. Find the domestic quantities demanded and supplied, and the quantity of imports or exports.

What is the value of maxwell mining stock : If D0 = $5 and rs = 17%, what is the value of Maxwell Mining's stock?

Shipping documentation of the transport vehicle : Identify the proper placarding, labeling, and shipping documentation of the transport vehicle as required by the DOT.

What is break-even cost per kilowatt-hour : You require a return of 11 percent and use a light fixture 500 hours per year. What is the break-even cost per kilowatt-hour?

Calculate the beta and cost of capital of levered equity : Calculate the beta and cost of capital of levered equity. How many shares will the company be able to buy back?

New sausage system with installed cost : Dog Up! Franks is looking at a new sausage system with an installed cost of $510,000. what is the NPV of this project?

What is the projected dividend for coming year : Momsen Corp. is experiencing rapid growth. What is the projected dividend for the coming year?

Pressure of a liquid when it is boiling in denver : What is the vapor pressure of a liquid when it is boiling in Denver, Colorado where atmospheric pressure is about 620 mmHG?

Elements of the hazcom standard : In addition to compliance with the elements of the HazCom Standard, the Occupational Safety and Health Administration (OSHA) requires that employers

User Account

All Pages