Question
Calculate the cost of equity capital for a subsidiary unit of ABC Corp. The subsidiary of ABC Corp. is in Cement business and they use
Calculate the cost of equity capital for a subsidiary unit of ABC Corp. The subsidiary of ABC Corp. is in Cement business and they use the cost of equity capital for calculating NPV for capital budgeting projects. The target Debt to Equity ratio for the subsidiary of ABC Corp. is 2. The risk free rate for a treasury bond of similar maturity as cement business is 7% p.a.
The Market Risk premium is 2% p.a. Tax rate is 30%
Information about similar firms in the Cement business are provided below.
D/V is market value of debt/Market value of firm
Company | D/V | Beta (equity) |
XYZ Ltd. | 0.2 | 0.56 |
PQR Ltd. | 0.4 | 1.50 |
What is the cost of equity capital for the subsidiary unit of ABC Corp. (nearest to one decimal)?
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