Answered step by step
Verified Expert Solution
Question
1 Approved Answer
show work please You are trying to estimate a beta for Zoom Tech. The regression beta over the last 5 years is 1.265, but the
show work please You are trying to estimate a beta for Zoom Tech. The regression beta over the last 5 years is 1.265, but the firm operated just in the Tech business and had an average debt to equity ratio of 25% over the period. The stock price is currently $60 per share and there are 35 million shares outstanding, and the current market value of debt is $ 450 million. Zoom is planning on borrowing $ 500 million and using $ 400 million to buy InfoPad Software, a small software firm with no debt and a beta of 1.30. It is also planning on using the remaining $ 100 million to pay a dividend to its stockholders. (Tax rate is 40%). What is Zoom's levered beta after the transaction? Hint(dividend reduces the value of Equity) O a. 0.81 O b. 1.56 O c. 1.21 d. 1.45 O e. 2.21 Clear my choice Give your reasons
show work please
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started