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Genuine Care is a company that offers health care services. The company has $150 million in interest-bearing debt (in book value and market value
Genuine Care is a company that offers health care services. The company has $150 million in interest-bearing debt (in book value and market value terms). The firm has 24 million shares trading at $ 13 a share, and the unlevered beta of comparable firms in the health care business is 0.75. 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? Estimate the cost of equity for the firm. Estimate the before-tax cost of debt for the firm. Estimate the after-tax cost of debt for the firm. What is the market value weight of debt? What is the market value weight of equity? Estimate the cost of capital for the firm.
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SOLUTION To calculate the levered beta for the firm you can use the Hamada equation Levered Unlevered 1 1 Tax Rate DebtEquity Given Unlevered 075 Tax ...Get Instant Access to Expert-Tailored Solutions
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