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A private firm has debt to equity ratio of 25% and tax rate of 35%. Given below is the information of the two publically listed
A private firm has debt to equity ratio of 25% and tax rate of 35%. Given below is the information of the two publically listed comparable firms called "Black and Decker" and "Fedders" in the same sector in the table below. Tax rate is 35% for all the firms in the Table. The market risk is 5% more than the risk free rate. The risk free rate of return is 3%. Assume Pre-tax cost of debt of the private firm as 4%
Firm Leveraged Beta Debt MV Equity
Black and Decker 1.8 3400 40000
Fedders 1.3 25 250
FIND OUT THE COST OF EQUITY FOR THE FIRM
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