Unlevered cost of capital for your new business

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Reference no: EM132042054

1. You wish to start a small side business, competitors in this industry have the following costs of capital:

Firm 1: re=15% rd=5% d/e=.5

Firm 2: re=18% rd = 5.2% d/e=.68

A. What will be a good estimate of your unlevered cost of capital for your new business?

B. If your firm will have cashflows of 3 million next year and it will grow by 2% per year what is the unlevered value of your firm? (online fill in 1)

C. If your tax rate is 35% and you wish to have a constant interest coverage ratio of 0.2, what will the levered value of your firm be?

Reference no: EM132042054

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