Question
a)The unlevered Beta of a firm is the same as the market. The manager is considering moving to a 50% debt capital structure with before-tax
a)The unlevered Beta of a firm is the same as the market. The manager is considering moving to a 50% debt capital structure with before-tax cost of debt of 7%. If risk free rate is 5% and market risk premium is 5%, what would be the WACC of levered firm? Assume 30% tax rate.
b) The unlevered Beta of a firm is 1.5. The manager is considering moving to a 30% debt capital structure. If risk free rate is 4% and market risk premium is 9%, what would be the cost of equity of levered firm? Assume 35% tax rate.
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Project Financing Asset-Based Financial Engineering
Authors: John D Finnerty
3rd Edition
1118421841, 9781118421840
