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EverShine was an unlevered company with beta of 1.25. It decided to borrow money and buyback...

  1. EverShine was an unlevered company with beta of 1.25. It decided to borrow money and buyback stock with the proceeds.

      Cost of equity capital went up by 9% after levering to a debt to value ratio of 0.5.

Debt is risk free. Tax rate is zero. Depreciation level is $ 50 Million per year. EBIT is $ 875 Million per year.           

How much is the market risk premium?

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Answer #1

oli Giveni unlevered bata = 1,25 on recapitalization: Debt / value ratio -0.5 Debt /equity ratio: 0.5) C1-0.5): 0.5/0.53 ) Le

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