Question
Trac is a private owned online company. Trac is financed for 45% with debt and for 55% with equity, and it plans to maintain its
Trac is a private owned online company. Trac is financed for 45% with debt and for 55% with equity, and it plans to maintain its debt-to-value ratio constant in the foreseeable future. Tracs cost of debt at this capital structure is 7%.
You have the following information about Top Hat and Examity, two publicly-traded online firms:
--------------------Equity beta ------------Debt Beta------------Debt equity
Top Hat--------2.1-------------------------0.2------------------0.25
Examity--------3------------------------0.7--------------------1.5
What is the weight average cost of capital for Trac?The risk-free rate is 1%, the market risk premium is 6% and the corporate tax rate is 20%.
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