Question
ToyCorp. is attempting to estimate its optimal capital structure. Currently, the company's cost of equity, which is based on the CAPM, is 12.0% and the
ToyCorp. is attempting to estimate its optimal capital structure. Currently, the company's cost of equity, which is based on the CAPM, is 12.0% and the risk free rate and equity market risk premium are 4.0% and 6.0%, respectively. Outside analysts inform Toys management team that the company's most optimal capital structure would have a mix of 40% debt and 60% equity. Assuming the company's current capital structure consists of 20% debt and 80% equity, and its tax rate is 35%, what mustToy Corp.'s unlevered beta be? the answer is 1.15, will you show the work for this?
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