What are the companys unlevered beta

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Reference no: EM133326390

Case: Claire Co.'s CFO has collected the following information:

The company estimates that its EBIT for the upcoming year will be $102 million. The company's tax rate is 40%.

The company has no growth opportunities - so you can assume that the company's capital expenditures will exactly equal its depreciation expense (i.e, net capital expenditure = 0).

Also, the change in net operating working capital is assumed to be 0. Since the company has no growth opportunities, the company's EBIT, NOPAT, and free cash flow will remain constant over time (i.e, you cna think of the company's cash flows as a perpetuity).

The company has $400 million in debt outstanding. The debt has a zero beta, so the yield to maturity on the company's debt equals the Risk-free rate (3%).

The company has 10 million shares of common stock outstandingand the stock currently trades at $60 a share. The risk-free rate is 3%.

The market risk premium is 5%. The stock's beta (i.e., the levered beta) is 1.2.

Assume that the company's interest tax savings from debt financing are discounted each year at the cost of debt. You can also assume that the levl of debt and the firm's capital structure will remain constant over time and that the beta on debt = 0.

Question 1: Compute the enterprise value of Claire Co. using WACC-DCF

Question 2: What are the company's unlevered beta and the unlevered cost of equity, respectively?

Question 3: What is the value of the unlevered firm (Vu); i.e., what would the form be worth if it had no debt in its capital structure?

Question 4: What is the present value of the company's future interest tax shields?

Reference no: EM133326390

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