Calculate the firm cost of equity

Reference no: EM131931454

Question: ABC currently has EBIT of 200. It has CAPEX of 50 and depreciation of 40. Working capital requirements are 5. Revenues are 500. The firm is expected to grow at 10% for the next 2 years and at a stable growth rate of 3% thereafter.

ABC has book debt of 100. It's debt currently trades at 150. It has book equity of 200. It has 100 shares outstanding, each of which trades at 2.5. The firm does not know its beta. However, its direct competitor has a D/E ratio of 0.5 and a beta of 1. The tax rate is 30%. The firm's interest rate on existing debt is 6% and lenders will require a return of 5% on any future capital raisings. The risk free rate is 5% and the market risk premium is 5.5%.

(a) Calculate the firm's cost of equity

(b) Calculate the firm's WACC

Reference no: EM131931454

Questions Cloud

Compare act and icm : Compare ACT and ICM. Which case management model relies on a team approach?

Comparative cause of death for adolescents : Explain the difference between "rate of suicide" as a comparative cause of death for adolescents/young adults versus older adults. (p. 14, Slide 36)

What is required before reorganization plan can implemented : What is normally required before a reorganization plan can be implemented? The plan must be presented by the company and confirmed by the court.

How would you describe a market niche : Describe four product/services that you own or consume that you would consider to be "niche" products.

Calculate the firm cost of equity : ABC has book debt of 100. It's debt currently trades at 150. It has book equity of 200. It has 100 shares outstanding, each of which trades at 2.5.

Views on the role of religion in society : Karl Marx and Max Weber had conflicting views on the role of religion in society. Unlike the functionalist approach who advocated that religion is helpful

Find the minimum cell cost method : Using systematic nomenclature for the variables, write out an LP formulation for the problem in preparation for applying computer software like 'solver'.

What risk-adjusted discount rate must be used : ABC Mining is evaluating the introduction of a new ore production process. Two alter?natives are available. Production Process A has an initial cost of $25,000.

Discuss the rationale for moving diagnosis of pathological : Explain the similarities and differences between addiction to chemical substances and addiction to gambling. Discuss the rationale for moving the diagnosis

User Account

All Pages