Question
A company has an equity beta of 2.00, cost of debt of 7%, d/e ratio of 0.35, and the tax rate of 35%. Risk Free
A company has an equity beta of 2.00, cost of debt of 7%, d/e ratio of 0.35, and the tax rate of 35%. Risk Free rate 1.25% and Market premium 8%.
| Name | Equity Beta | Kd | D/E | Tax |
| Competitor 1 | 1.5 | 7.50% | 0.4 | 35% |
| Competitor 2 | 2.5 | 8.00% | 0.3 | 40% |
Calculate the cost of capital of the company using Pure Play Approach.
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Intermediate Financial Management
Authors: Eugene BrighamPhillip Daves
1st Edition
0324594712, 9780324594713
