What is the levered value of the equity

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Reference no: EM132021955

1. Toys World is currently an all equity firm that has 1,400,000 shares of stock outstanding with a market price of $54 a share. The current cost of equity is 10.28 percent and the tax rate is 34 percent. The firm is considering adding $5.8 million of debt with a coupon rate of 6.2 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity?

$77,643,200

$74,518,000

$71,772,000

$67,298,500

$65,530,000

2. Hi-Tek has debt with both a face and a market value of $6,200,000. This debt has a coupon rate of 6.4 percent and pays interest annually. The expected earnings before interest and taxes are $2,180,000, the tax rate is 34 percent, and the unlevered cost of capital is 8.54 percent. What is the firm's cost of equity?

7.86%

9.23%

11.20%

8.34%

10.02%

Reference no: EM132021955

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