What is the estimated cost of capital for maverick company

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Reference no: EM132415623

Maverick company is a publicly-traded company, with 20 million shares trading at $ 70 a share and $ 600 million in debt (market value as well as book value) outstanding. The firm derives 70% of its value from cloud storage and hosting, and the remaining 30% from technical service. The un-levered beta is 0.8 for firms in the cloud business and 1.2 for firms in the technical service business. Maverick company is rated A and can borrow money at 5%. The risk-free rate is 2% and the market risk premium is 8%; the corporate tax rate is 30%, and the firm has a capital gains tax rate of 20% Maverick Company is considering acquiring Beta Company, another cloud hosting company which derives 100% of its revenues from hosting. Maverick will pay $350 million for Beta Comapny, 75% of which it plans to fund by a new debt issue (which will cause its rating to drop and its cost of debt to rise to 5.5%) and a 25% by issuing new stock.

What is the estimated cost of capital for Maverick Company after the acquisition?

Reference no: EM132415623

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