Question 6 [5 pts]

Swyft is a private startup firm that operates peer-to-peer ride sharing service. The firm has business risk similar to that of Uber Technologies Inc. (NYSE: UBER). To evaluate Swyft, a venture capitalist has collected the following information:

Swyft has financed 40% of its total investment using debt and plans to maintain its current leverage ratio in the future. Its debt beta is estimated at 0.1.

Swyft faces a marginal tax rate of 30%.

Uber has market capitalization (i.e., equity) worth $30 billion and debt worth $30 billion. Its equity beta and debt beta, respectively, are estimated at 1.3 and 0.1.

Ubers marginal tax rate is zero.

The risk-free rate is 3% and the market risk premium is 6%.

Answer questions (a) and (b) below.

A) Determine the unlevered asset beta and unlevered cost of capital for Swyft.

Answer (show the steps/calculation toward your results):

B) Find the weighted average cost of capital (WACC) for Swyft.

Answer (show the steps/calculation toward your results):