Genuine Care is a company that offers health care services. The company has $100 million in interest-bearing debt (in book value and market value terms). The firm has 24 million shares trading at $ 10 a share, and the unlevered beta of comparable firms in the health care business is 0.85. The firm has a current rating of B, with a default spread of 0.05 over the risk-free rate. The risk-free rate is 0.04, the equity risk premium is 0.07 and the corporate tax rate is 40%.

What is the levered beta for the firm?

Answer for part 1

Estimate the cost of equity for the firm.

Answer for part 2

Estimate the before-tax cost of debt for the firm.

Answer for part 3

Estimate the after-tax cost of debt for the firm.

Answer for part 4

What is the market value weight of debt?

Answer for part 5

What is the market value weight of equity?

Answer for part 6

Estimate the cost of capital for the firm.

Answer for part 7