Your firm has a target debt ratio of 30%. Cost of debt (Rb) is 6%. The risk-free rate is 3% and the expected market risk premium is 6%. Your firm's unlevered (asset) beta is 1. What is the appropriate rate to discount the interest tax shields associated with your debt?
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Your firm has a target debt ratio of 30%. Cost of debt (Rb) is 6%. The risk-free rate is 3% and the expected market risk premium is 6%. Your firm's unlevered (asset) beta is 1.
What is the appropriate rate to discount the interest tax shields associated with your debt?
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- Your firm is targeting specific debt levels in the future. Cost of debt (RB) is 7%. The risk-free rate is 4% and the expected market risk premium is 6%. Your firm's unlevered (asset) beta is 1. What is the appropriate rate to discount the interest tax shields associated with your debt? 4.0% 6.00% 10.00% 12.57% 7.00%Your firm has a target debt ratio of 30%. Cost of debt (RB) is 6%. The risk-free rate is 3% and the expected market risk premium is 6%. Your firm's unlevered (asset) beta is 1. What is the appropriate rate to discount the interest tax shields associated with your debt? 10.00% 11.57% 6.00% 9.00% 4.00%Where do we generally find optimal level of debt? A. where the tax shield is maximized B. the amount of debt such that the YTM is 5.5% or less C. where debt equals equity D. whatever will yield a FICO sore of 700 or better E. consistent with a low investment grade debt rating
- Show your work for the following A firm's equity beta is 1.2 and its debt is risk free. Given a 0.7 debt to equity ratio, what is the firm's asset beta? (Assume no taxes.) Multiple Choice A) 0.7 B) 0 C) 1.0 D) 1.2You have the following initial information on which to base your calculations and discussion: Debt yield = 2.5% Required Rate of Return on Equity = 13% Expected return on S&P500 = 8% Risk-free rate (rF) = 1.5% Inflation = 2.5% Corporate tax rate (TC) = 30% Current long-term and target debt-equity ratio (D:E) = 1:3 a. What is the unlevered cost of equity (rE*) for this firm? Assume that the management of the firm is considering a leveraged buyout of the above company. They believe that they can gear the company to a higher level due to their ability to extract efficiencies from the firm’s operations. Thus, they wish to use a target debt-equity ratio of 3:1 in their valuation calculations. b. What would the levered cost of equity equal for this firm at a debt-equity ratio (D:E) of 3:1? c. What would the required rate of return for the company equal if it were to be acquired under the leveraged buyout structure (i.e., what would the estimated firm WACC equal to under a…You have the following initial information on which to base your calculations and discussion: Debt yield = 2.5% Required Rate of Return on Equity = 13% Expected return on S&P500 = 8% Risk-free rate (rF) = 1.5% Inflation = 2.5% Corporate tax rate (TC) = 30% Current long-term and target debt-equity ratio (D:E) = 1:3 a. What is the unlevered cost of equity (rE*) for this firm? Assume that the management of the firm is considering a leveraged buyout of the above company. They believe that they can gear the company to a higher level due to their ability to extract efficiencies from the firm’s operations. Thus, they wish to use a target debt-equity ratio of 3:1 in their valuation calculations.
- Give typing answer with explanation and conclusion A firm currently has a debt-equity ratio of 2/5. The debt, which is virtually riskless, pays an interest rate of 4 %. The expected rate of return on the equity is 13 %. What is the Weighted-Average Cost of Capital if the firm pays no taxes? Enter your answer as a percentage rounded to two decimal places. Do not include the percentage sign in your answer.Calculate the company's asset beta, if the firm's equity beta is 1.6, the debt equity ratio is 0.6 and the marginal tax rate is 30%. Select a O O 1.1268 2.1268 O 1.2618 2.216An all equity firm announces that it is going to borrow $11 million in debt and then keep that debt at a constant value relative to the overall value of the company. What would be the appropriate discount rate for the expected interest tax shields generated by this additional debt? A. Required return on debt B. Required return on equity C. Required return on Assets D. WACC
- What happens to ROE for Firm U and Firm L if EBIT falls to $1,600? What happens if EBIT falls to $1,200? What is the after-tax cost of debt? What does this imply about the impact of leverage on risk and return?Derive the inverse relationship between Price and Yield in debt markets using a property-based example where the market price doubles in value but ultimately falls by one third of the initial price and where the initial rental yield is 6%. Include an explanation or commentary along with your calculations and proof.ACB Inc. is examining its capital structure with the intent of arriving at an optimal debt ratio. It currently has no debt and has a beta of 1.4. T-Bond rate is 7.5%. Your research indicates that the debt rating will be as follows at different debt levels: Your research indicates that the debt rating will be as follows at different debt levels: D/(D+E) Rating Interest rate 0% AAA 9.5% 10% AA 10% 20% 10.5% 30% BBB 11.5% 40% 12.5% 50% 13.5% 60% 15% 70% CC 18% 80% 20% 90% D 25% The firm currently has 2 million shares outstanding at $20 per share, and the tax rate is 35%. Assume an equity market risk premium of 6%. What is the firm's optimal debt ratio?