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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 can borrow at 4%, and your firm is financed with 60% debt, 40% equity, what is your levered cost of equity?
b- 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?
c- List two ways in which your art gallery violates Modigliani-Miller assumptions.
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 can borrow at 4%, and your firm is financed with 60% debt, 40% equity, what is your levered cost of equity?
b- 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?
c- List two ways in which your art gallery violates Modigliani-Miller assumptions.
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