Required rate of return on the biz tech shares

Assignment Help Finance Basics
Reference no: EM133074327

The total market value of Biz Tech shares is $60 million, and the total market value of its debt is $40 million. The treasurer estimates that the beta of the shares is currently 1.5. The expected risk premium on the market is 8%. The risk- free rate on the Treasury securities is 5%. Biz Tech's debt requires a credit spread of 1% above the risk-free rate. The company's tax rate is 30%.

1. What is the required rate of return on the Biz tech shares? = 0.05+0.08+0.01=0.14 (not sure if this is correct?)

2. Estimate the company's cost of capital. =0.05+1.5(0.14)-0.05 = 0.21 = 21% (not sure if this is correct?)

Reference no: EM133074327

Questions Cloud

Explain the likely effects on dividend-payout ratios : Explain the likely effects on dividend-payout ratios of each of the followings.
Differentiate investment assets and consumption assets : Assume you have observed the following information for a commodity:
Prepare you for communicating in a professional work : Prepare you for communicating in a professional work setting. When you are writing in the workplace - Consider who it is you are communicating with
Estimate the company cost of capital : 1. What is the required rate of return on the Biz tech shares? The total market value of Biz Tech shares is $60 million, and the total market value of its debt
Required rate of return on the biz tech shares : The total market value of Biz Tech shares is $60 million, and the total market value of its debt is $40 million. The treasurer estimates that the beta of the sh
Different industries in the australian stock market : The following table shows characteristics of firms from different industries in the Australian stock market.
Creating a personal balance sheet : 1. Since a budget is made up of fixed expenses and variable expenses, identify which of Sonny's expenses fall into each category.
How risky do you consider your human capital : In investments, the lender expects you to repay the loan - but they can't know for sure whether you will or not. They can "secure" their loan against what you b
Create a plan for approaching tough conversations : Create a plan for approaching tough conversations with employees, including a rationale for the most essential topics to cover

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the degree of operating leverage for project

What is the degree of operating leverage for this project? Show your work.

  Capital budgeting and decision making

How is the NPV rule related to the goal of maximizing shareholder wealth, and under what conditions would you expect the NPV and IRR

  What do given terms mean to the financial aspect of a firm

Compare and Contrast the goals of profit maximization and maximization of shareholder equity. What do these terms mean to the financial aspect of a firm?

  Nimitz rental company had depreciation expenses of 108905

nimitz rental company had depreciation expenses of 108905 interest expenses of 78112 and an ebit of 1254338 for the

  Calculate the expected return of the portfolio

Which of the following stock would you expect to give a return higher than the market? Explain your answer.

  Type the absolute value of the answer

A firm is planning to purchase a new machine to replace old. The cost of machine is $400,000, shipping is $50,000 and installation is $30,000.

  How does ford initially value its debt

MFE6110 - Long-term liabilities How does Ford initially value its debt on the balance sheet? How are the discounts, premiums, and costs directly related to the issuance of debt recognized - What method does Ford use to calculate interest expense o..

  How much the various policies cost on an annual basis

Explain how much the various policies cost on an annual basis. (Use any relevant online or professional quotes to get a feel about the cost level

  Do you feel the sales team-public relations team

Do you feel the sales team, public relations team, or both should have direct access to managing social media in addition to the marketing team?

  Your bank account pays a 6 nominal rate of interest the

your bank account pays a 6 nominal rate of interest. the interest is compounded quarterly. which of the following

  Description of dividend policy

Discuss the advantages, disadvantages, and types of firms (e.g. growth oriented, mature, etc.) that might be likely to adopt each type of the following dividend policies:

  Evaluate the option as one whose exercise price is

MassGlass Corporation is a firm with $100 million in equity and $15 million in debt. The debt has maturity of 5 years. If we view the equity of this firm.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd