cost of debt 8% unlevered cost of capital 10% systematic risk of asset 1.5 1) Unlevered Firm Levered Firm EBIT 10000 10000 Interest 0 3200 Taxable Income 10000 6800 34% Tax 3400 2312 Net Income 6600...



























































































































































































































































cost of debt8%
unlevered cost of capital10%
systematic risk of asset1.5
1)
Unlevered FirmLevered Firm
EBIT1000010000
Interest03200
Taxable Income100006800
34%Tax34002312
Net Income66004488
CFFA0-3200
2)PV of the tax shield?
Value of levered firm3200
tax rate34%
(value of levered firm*tax rate)/(1+cost of debt)
PV of tax shield1007.41
value of levered firm/cost of debt
3)Size of debt40000
4)
a)EBIT(1-T)/cost of capital
Value of unlevered firm66000
b)value of unlevered firm+Tax*size of debt
Value of levered firm79600
c)total value of unlevered firm-debt
Equity value39600
d)cost of equitycost of capital+(debt/equity)(cost of capital-cost of debt)
cost of equity12.02%
e)wacc formula
equity/value of levered firm*cost of equity+debt/value of levereed firm*cost of debt*(1-T)
cost of capital (levered)8.63%
f)systematic risk of asset*(1+((1-T)*(debt/equity)))
systematic risk of equity2.5

Hi I really need help with question 5! Thank you so much!


5. Suppose that the firm changes its capital structure so that the debt-to-equity ratio is 1.0, then recalculate the systematic risk of the equity





Jun 05, 2022
SOLUTION.PDF
SOLUTION.PDF

Get Answer To This Question

Related Questions & Answers

More Questions »

Submit New Assignment

Copy and Paste Your Assignment Here
Have files?