Question
You have run a regression of Google returns against returns on the S&P500 and the equation was as follows: ReturnsGoogle = 0.0001 + 0.75 (ReturnsS&P500)
You have run a regression of Google returns against returns on the S&P500 and the equation was as follows: ReturnsGoogle = 0.0001 + 0.75 (ReturnsS&P500) R2 = 0.75, the standard error for beta estimate is 0.5 You also note that the average unlevered beta for comparable firms is 1.2, Google's debt-to-equity ratio 30% ,T-bond rate is 0.075 and the equity risk premium is 0.065 and Google AA rate bond default spread is 0.02. ( Tax rate = 40%) Please write your answers in decimals. What is the levered beta for Google? Answer for part 1 What is Google's after tax cost of debt? Answer for part 2 What is Google's cost of equity? Answer for part 3 What is the WACC? Answer for part 4 What is the firm specific risk? Answer for part 5 What is the market risk? Answer for part 6 What is the lower bound in a 95 confidence interval for beta estimate? Answer for part 7 What is the upper bound in a 95 confidence interval for beta estimate?
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