Tax rate Cost of debt Debt fin millions) Equity beta Firm Hoyaco Sava Inc Earnings fend of year, in millions) 5 2,015 $ 2,980 Shares outstanding Stock price in millions) 425$ 50.00 5 1,050 S 25.00 5 12,200 986 0.93 1.2 4.25% 5.25% 35% 35% 2 Hoyaco wants to buy Saxa Inc., and believes that Saxa Inc. could stand to have more leverage, which would generate additional tax shields. So, the management at Hoyaco plans to increase Saxa Ine's debt so itsleverage 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 Saxca Inc.? You can assume the beta of debt 0. Discount rate used to value Saxainc = Tax rate Cost of debt Debt fin millions) Equity beta Firm Hoyaco Sava Inc Earnings fend of year, in millions) 5 2,015 $ 2,980 Shares outstanding Stock price in millions) 425$ 50.00 5 1,050 S 25.00 5 12,200 986 0.93 1.2 4.25% 5.25% 35% 35% 2 Hoyaco wants to buy Saxa Inc., and believes that Saxa Inc. could stand to have more leverage, which would generate additional tax shields. So, the management at Hoyaco plans to increase Saxa Ine's debt so itsleverage 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 Saxca Inc.? You can assume the beta of debt 0. Discount rate used to value Saxainc =