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Example 22: X Ltd., pays no taxes and is entirely financed by equity shares. The company's equity has a Beta of 0.6 and is expected
Example 22: X Ltd., pays no taxes and is entirely financed by equity shares. The company's equity has a Beta of 0.6 and is expected to earn 20%. The company has now decided to buy back half of the equity shares by borrowing an equal amount. If the debt yield a risk free return of 10%. Calculate. (1) The beta of the equity shares after the buy back. (2) The required return and risk premium on the equity shares before the buy back. (3)The required return and risk premium on the equity shares after the buyback. (4) The required return on debt. Example 22: X Ltd., pays no taxes and is entirely financed by equity shares. The company's equity has a Beta of 0.6 and is expected to earn 20%. The company has now decided to buy back half of the equity shares by borrowing an equal amount. If the debt yield a risk free return of 10%. Calculate. (1) The beta of the equity shares after the buy back. (2) The required return and risk premium on the equity shares before the buy back. (3)The required return and risk premium on the equity shares after the buyback. (4) The required return on debt
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