Stock price Equity beto Cost of debt Tax rate Earnines fend of year in millions) Shares outstanding in millions) Debt fin millions) Elrm Hoyaco Saxainc 5 $ 2,015 2,980 425 5 1,050 $ 50.00 $ 25.00 $ 12,200 986 0.93 1.2 4.25% 5.25% 35% 35% HoyaCo wants to buy Saxa Inc., and believes that Saxainc. could stand to have more leverage, which would generate additional tax shields. So, the management at Hoyaco plans to increase Saxa Inc.'s debt so its leverage ratio (debt to market equity) is 0.35. Assume that the risk.free rate is 3%, and that the market risk premium is 7%. Assume that the cost of debt is unaffected by the increased leverage What cost of capital do you use to value Saxa Inc.? You can assume the beta of debt = 0 Discount rate used to value Saxa Inc. - Stock price Equity beto Cost of debt Tax rate Earnines fend of year in millions) Shares outstanding in millions) Debt fin millions) Elrm Hoyaco Saxainc 5 $ 2,015 2,980 425 5 1,050 $ 50.00 $ 25.00 $ 12,200 986 0.93 1.2 4.25% 5.25% 35% 35% HoyaCo wants to buy Saxa Inc., and believes that Saxainc. could stand to have more leverage, which would generate additional tax shields. So, the management at Hoyaco plans to increase Saxa Inc.'s debt so its leverage ratio (debt to market equity) is 0.35. Assume that the risk.free rate is 3%, and that the market risk premium is 7%. Assume that the cost of debt is unaffected by the increased leverage What cost of capital do you use to value Saxa Inc.? You can assume the beta of debt = 0 Discount rate used to value Saxa Inc