A)
CAPM Model = Cost of Equity = RF + Beta (Market Risk Premium)
15% = 5% + Beta (5%)
Beta = 2
B) Unlevered Beta = Levered beta (equity beta)/1+ (1-Tax) * debt / Equity
= 2/(1+ (0.6*0.25)/0.75)
= 1.67
Excel Online Structured Activity: Hamada equation Situational Software Co. (SSC) is trying to establish its optimal...
Excel Online Structured Activity: Hamada equation Situational Software Co. (SSC) is trying to establish optimal capital structure. Its current capital structure consists of 25 debt and 75% however, the CEO believes that the firm should use more debt. The risk-free rates is the market is premium, is 5%, and the firm's tax rate is 40%. Currently, SSC's cost of equity is 15%, which is determined by the CAPM. The data has been collected in the Microsoft Excel Online Open the...
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 20% debt and 80% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, RF, is 6%; the market risk premium, RPM, is 5%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 15%, which is determined by the CAPM. The data has been collected in the Microsoft Excel Online file below. Open...
Excel Online Structured Activity: Hamada equation Situational Software Co. (sSC) is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, rRF, is 3%; the market risk premium, RPM, is 6%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 16%, which is determined by the CAPM. The data has been collected in the...
HAMADA EQUATION Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 30% debt and 70% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, ref, is 4%; the market risk premium, RPM, is 7%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 15%, which is determined by the CAPM. What would be SSC's estimated cost of equity if it changed...
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 35% debt and 65% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, rRF, is 6%; the market risk premium, RPM, is 7%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 13%, which is determined by the CAPM. The data has been collected in the Microsoft Excel Online file below. Open...
Hamada equation Original % debt in capital structure, Wd Original % common equity in capital structure, wc Risk-free rate, IRF Market risk premium, RPM Tax rate, T Firm's cost of equity, rs 35.00% 65.00% 3.00% 5.00% 40.00% 16.00% Formulas Calculation of firm's current beta: Firm's current beta, b #N/A Calculation of firm's unlevered beta: Firm's unlevered beta, bu #N/A New % of debt in capital structure, Wd New New % of common equity in capital structure, Wc New 50.00% 50.00%...
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 35% debt and 65% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, rRF, is 6%; the market risk premium, RPM, is 5%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 13%, which is determined by the CAPM. The data has been collected in the Microsoft Excel Online file below. Open...
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 35% debt and 65% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, RF, is 3%; the market risk premium, RPM, is 5%; and the firm's tax rate is 40%. Currently, SSC's cost of equity is 16%, which is determined by the CAPM. The data has been collected in the Microsoft Excel Online file below. Open...
Hamada equation Original % debt in capital structure, Wd Original % common equity in capital structure, wc Risk-free rate, IRE Market risk premium, RPM Tax rate, T Firm's cost of equity, rs 20.00% 80.00% 6.00% 7.00% 40.00% 16.00% Formulas Calculation of firm's current beta: Firm's current beta, bL #N/A Calculation of firm's unlevered beta: Firm's unlevered beta, bu #N/A New % of debt in capital structure, Wd New New % of common equity in capital structure, Wc New 50.00% 50.00%...
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure consists of 40% debt and 60% equity; however, the CEO believes that the firm should use more debt. The risk-free rate, RF, is 6%; the market risk premium, RPM, is 7%; and the firm's tax rate is 25%. Currently, SSC's cost of equity is 14%, which is determined by the CAPM. What would be SSC's estimated cost of equity if it changed its capital...