Question
The asset beta for an art gallery is 1.9. The risk free rate is 2.2%, an S&P500 index fund returns 11.5%, and the tax rate
The asset beta for an art gallery is 1.9. The risk free rate is 2.2%, an S&P500 index fund returns 11.5%, and the tax rate is 27%.
a. If you are opening an art gallery, what would your unlevered cost of capital be?
b- If you can borrow at 4%, and your firm is financed with 60% debt, 40% equity, what is your levered cost of equity?
c- If setting up your art gallery costs $1M today, and will produce $125,000 in EBIT per year for the next 25 years, what is the NPV of opening the gallery, using the WACC method?
d- List two ways in which your art gallery violates Modigliani-Miller assumptions?
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a The unlevered cost of capital commonly known as the cost of equity is the return required by the companys shareholders for their investment This is ...
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
