Peter Inc. has an asset beta of 1.3, and a debt to equity ratio of 1.7. Their tax rate is 0.33. If the risk free rate is 0.07, and the expected return on the S&P500 is 0.16, what is the cost of levered equity for Peter Inc.?
Levered Beta = Unlevered Beta x (1 + ((1 – Tax Rate) x (Debt/Equity))) |
levered beta = 1.3*(1+((1-0.33)*(1.7))) |
levered beta = 2.78 |
As per CAPM |
expected return = risk-free rate + beta * (expected return on the market - risk-free rate) |
Expected return% = 7 + 2.78 * (16 - 7) |
Expected return% = 32.02 |
Peter Inc. has an asset beta of 1.3, and a debt to equity ratio of 1.7....
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General Products has an asset beta of 1.0, and a debt to equity ratio of 1.3. Their tax rate is 0.40. If the risk free rate is 0.05, and the expected return on the S&P500 is 0.18, what is the cost of levered equity for General Products?
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Question 3 1 pts General Products has an asset beta of 1.1, and a debt to equity ratio of 1.2. Their tax rate is 0.34. If the risk free rate is 0.04, and the expected return on the S&P500 is 0.17, what is the cost of levered equity for General Products?
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