Question
1. D/E is 4.0, cost of equity is 15%, pretax cost of debt is 5%, corporate tax rate is 35%, Risk free rate is 300
1. D/E is 4.0, cost of equity is 15%, pretax cost of debt is 5%, corporate tax rate is 35%, Risk free rate is 300 basis points lower than the pretax cost of debt. Find WACC.
2. Risk free rate is 2.5%. Equity risk premium (ERP) is 7%. If Beta is 1.65, what is the cost of equity capital using Capital Asset Pricing Model?
3. WACC is 16%, CF1 = 1,000,000 CF2 = 1,200,000 CF3 = 4% more than CF2 long-term growth is 4% FIND the Present Value.
4. D/E is 4.0, pretax cost of debt is 5%, corporate tax rate is 35%, Risk free rate is 300 basis points lower than the pretax cost of debt. Find the cost of equity given M&M Proposition II (from chapter 16). Presume that the unlevered company (i.e., no debt) has Net Income of $2.5 million on Total Assets of $17.86 million. See pages 528-536. FIND the cost of equity under M&M II.
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