Question

Suppose you borrow $1,500 when financing a gym Ivalued at $28,500. Assume that the unlevered cost of the gym is 10% and that the cost of debt is valued at 11%. What should be the cost of equity of your firm? Note: Answer in percentage of your answer is 0.405, then answer 4.05 3) DBF borrows IIB by using a year bonds. ECB'S I cost of debt is 9%, so it will need to pay intrest leach year for the next 9 years, and then repay. the pincipal t1B in year 9. ECB's morginal tax Irate will remain 37% througout this period. By how much does the intrest tax shield increase the value of oBf. NOC: Provide your answers in Millions. EG For IOOM you must enter 100.000,for ZOH you must enter 20.000, ect.

Answer 1

Re = Ra + (Ra - Rd) * (D/E) * (1 - t)

= 0.10 + (0.10 - 0.11) * ($11,500 / ($28,500 - $11,500)) * 1

= 0.10 + (-0.01) * (11,500 / 17,000) * 1

= 0.10 + (-0.01 * 0.676470588))

= 9.32%

Cost of equity = 9.32%

Note : As per HOMEWORKLIB RULES, only first question can be answered. Thank you...