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Use the following information pertaining to Totem Holaings to # 1 6 - # 2 0 . You are assessing the optimal capital structure for
Use the following information pertaining to Totem Holaings to ##
You are assessing the optimal capital structure for Totem Holdings, a large publicly traded chemical company with million shares trading at $ per share and $ billion in debt outstanding. The firm currently has a pretax cost of debt of and you have correctly estimated the current cost of capital to be The firm is planning to borrow an additional $ billion which will push up the pretax cost of debt to and
use the proceeds to buy back $ billion in stock and invest $ billion in its existing business. For simplicity, assume that the debt beta remains to be zero. The firm's tax rate is the current riskfree rate is and the market risk premium is
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Use the information pertaining to Totem Holdings provided above to answer the following question.
Required: Determine the firm's unlevered asset beta. Points
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