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Energy Corp. has a market capitalization of $15 billion and debt with market value of $5 billion. Energy will keep its current Debt-to-Equity ratio constant.
Energy Corp. has a market capitalization of $15 billion and debt with market value of $5 billion. Energy will keep its current Debt-to-Equity ratio constant. The equity cost of capital is rE = 10% and the cost of debt is rD = 6%. The corporate tax rate is 35%. Assume a market risk premium of 6% and a risky-free rate of 5%. The firm is considering an expansion project (i.e., same risk as the firms assets) with the following cash flows:
Year | 0 1 2 |
Free Cash Flows ($M) | -100 70 120 |
Energys debt Beta is closest to: (A) 0.15 (B) 0.17 (C) 0.20 (D) 0.23
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