Question
ABC Inc. currently has debt of $75 million and equity of $25 million for a total value (i.e. value of the levered firm, VL) of
ABC Inc. currently has debt of $75 million and equity of $25 million for a total value (i.e. value of the levered firm, VL) of $100 million. The firm's cost of debt is 4% and it pays a corporate tax rate of 25%. The risk free rate is 3%, the expected return on the market is 8% and the firm's current equity beta is 2.15. What would be the cost of equity for ABC if it had no debt (i.e. the unlevered cost of equity, Ro)?
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Valuation The Art and Science of Corporate Investment Decisions
Authors: Sheridan Titman, John D. Martin
3rd edition
133479528, 978-0133479522
