3. If you follow this approach, what are you assuming about the risk of the company's unlevered assets and oquity in the future (a) The risk of the unlevered assets decreased; the risk of the equity increased. (b) The risk of the unlevered assets decreased, the risk of the equity decreased (c) The risk of the unlevered assets stayed constant; the risk of the equity increased (d) The risk of the unlevered assets stayed constant; the risk of the equity decreased (e) There is not enough infonnation to determine. Simply cireling an answer will receive no credit. You docided tusc Faa-Freach modal to computc thc cest of oquity for Pear Corporation You are trying to estieate the value of Pear Corpeestion using the WACC approach. As a farst sep. you decided to estimate&e company's cos of debt. While che company's current DV is 020, you noticed that the coempany is expoctd lo approximeely doutle its DV ratio next olowing nsin arter. Therefore, you decklod to work with a target DV ratio aqual o040. You also noticed that the cumen ating of the compary's dett is A and that this raing is expected to be downgraded t BBB- as a coesequence of the expected increase in leverage Therefore, you expect the compeny to have a BBB-r he inforation below ating from sext quarter on. This motivated the colloction of (Q1-04 VERY IMPORTANT QUESTIONS Th: Fama Freach model is iven by: Suppose Bow you decided to estimae a WACC schedule, showing the WACC for differen target debt-to-value ratios. You decided to use the cost ofdebt computed in Question #1 and al other assumptions stated above, exoep the target debs-to-valae ratio, which now will changs over the lines of the schedule Risk-froe noc piven by prrvins tobk 4 What shoald happen to the WACC in your schedule? (a) The WACC should decline as levernge increases (b) The WACC should stay constant as leverage increases (c) The WACC should increase as leverage increases. (d) The WACC ntlly decrease but will eventually increase when leverage becomes large (e) There is not enough information to determine. 1 30 2 Based on this appouch what is the oost ef equity nd afer tax WACC fr thecomany? I. Estimate the cost of debt for Pcar Corporation 3. If you follow this approach, what are you assuming about the risk of the company's unlevered assets and oquity in the future (a) The risk of the unlevered assets decreased; the risk of the equity increased. (b) The risk of the unlevered assets decreased, the risk of the equity decreased (c) The risk of the unlevered assets stayed constant; the risk of the equity increased (d) The risk of the unlevered assets stayed constant; the risk of the equity decreased (e) There is not enough infonnation to determine. Simply cireling an answer will receive no credit. You docided tusc Faa-Freach modal to computc thc cest of oquity for Pear Corporation You are trying to estieate the value of Pear Corpeestion using the WACC approach. As a farst sep. you decided to estimate&e company's cos of debt. While che company's current DV is 020, you noticed that the coempany is expoctd lo approximeely doutle its DV ratio next olowing nsin arter. Therefore, you decklod to work with a target DV ratio aqual o040. You also noticed that the cumen ating of the compary's dett is A and that this raing is expected to be downgraded t BBB- as a coesequence of the expected increase in leverage Therefore, you expect the compeny to have a BBB-r he inforation below ating from sext quarter on. This motivated the colloction of (Q1-04 VERY IMPORTANT QUESTIONS Th: Fama Freach model is iven by: Suppose Bow you decided to estimae a WACC schedule, showing the WACC for differen target debt-to-value ratios. You decided to use the cost ofdebt computed in Question #1 and al other assumptions stated above, exoep the target debs-to-valae ratio, which now will changs over the lines of the schedule Risk-froe noc piven by prrvins tobk 4 What shoald happen to the WACC in your schedule? (a) The WACC should decline as levernge increases (b) The WACC should stay constant as leverage increases (c) The WACC should increase as leverage increases. (d) The WACC ntlly decrease but will eventually increase when leverage becomes large (e) There is not enough information to determine. 1 30 2 Based on this appouch what is the oost ef equity nd afer tax WACC fr thecomany? I. Estimate the cost of debt for Pcar Corporation