Question
If Company ABC's current capital structure is: 25% debt, 75% equity; risk free rate of return r RF = 5%; market premium r M -
If Company ABC's current capital structure is: 25% debt, 75% equity; risk free rate of return
rRF = 5%; market premium rM - rRF = 6%; tax rate T = 40%; and cost of equity rs = 14%,
a.What's the Company's levered beta b?
b.What's the Company's unlevered beta bu ?
c.If the Company's debt ratio becomes 50%, what's Company's new levered beta bL ?
d.What's the Company's new cost of equity under the changed capital structure?
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Analysis for Financial Management
Authors: Robert C. Higgins
10th edition
007803468X, 978-0078034688
