North Pole Fishing Equipment Corporation and South Pole Fishing Equipment Corporation would have identical equity betas of 1.17 if both were all equity financed. The market value information for each company is shown here: |
North Pole | South Pole | |||||
Debt | $ | 3,020,000 | $ | 3,930,000 | ||
Equity | $ | 3,930,000 | $ | 3,020,000 | ||
The expected return on the market portfolio is 12 percent and the risk-free rate is 4 percent. Both companies are subject to a corporate tax rate of 22 percent. Assume the beta of debt is zero. |
a. |
What is the equity beta of each of each company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
b. | What is the required rate of return on equity for each company? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
North Pole Fishing Equipment Corporation and South Pole Fishing Equipment Corporation would have identical equity betas...
North Pole Fishing Equipment Corporation and South Pole Fishing Equipment Corporation would have identical equity betas of 1.19 if both were all equity financed. The market value information for each company is shown here: North Pole Debt =$ 3,040,000 south pole debt= $ 3,950,000 north pole Equity =$ 3,950,000 south pole equity= $ 3,040,000 The expected return on the market portfolio is 12.2 percent and the risk-free rate is 4.2 percent. Both companies are subject to a corporate tax rate...
North Pole Fishing Equipment Corporation and South Pole Fishing Equipment Corporation would have identical equity betas of 1.21 if both were all equity financed. The market value information for each company is shown here: North Pole South Pole Debt $ 3,010,000 $ 3,910,000 Equity $ 3,910,000 $ 3,010,000 The expected return on the market portfolio is 12 percent, and the risk-free rate is 4.3 percent. Both companies are subject to a corporate tax rate of 35 percent. Assume...
If Wild Widgets, Inc., were an all-equity company, it would have a beta of .95. The company has a target debt-equity ratio of .65. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.4 percent. The company has one bond issue outstanding that matures in 27 years, a par value of $2,000, and a coupon rate of 6.1 percent. The bond currently sells for $2,120. The corporate tax rate is 25 percent. a. What...
If Wild Widgets, Inc., were an all-equity company, it would have a beta of 1.20. The company has a target debt-equity ratio of .55. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.2 percent. The company has one bond issue outstanding that matures in 25 years, a par value of $2,000, and a coupon rate of 5.9 percent. The bond currently sells for $2,140. The corporate tax rate is 23 percent. a. What...
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Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 10,000 shares of stock outstanding, currently worth $20 per share. Beta Corporation uses leverage in its capital structure The market value of Beta's debt is $60,000 and its cost of debt is 8 percent. Each firm is expected to have earnings before interest of $70,000 in perpetuity. Neither firm pays taxes. Assume that every investor can borrow at 8 percent...
Problem 18-4 WACC If Wild Widgets, Inc., were an all-equity company, it would have a beta of .95. The company has a target debt-equity ratio of .50. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.1 percent. The company has one bond issue outstanding that matures in 25 years, a par value of $1,000, and a coupon rate of 6 percent. The bond currently sells for $1,050. The corporate tax rate is 23...
Problem 18-4 WACC If Wild Widgets, Inc., were an all-equity company, it would have a beta of .95. The company has a target debt-equity ratio of .50. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.1 percent. The company has one bond issue outstanding that matures in 25 years, a par value of $1,000, and a coupon rate of 6 percent. The bond currently sells for $1,050. The corporate tax rate is 23...
Problem 18-4 WACC If Wild Widgets, Inc., were an all-equity company, it would have a beta of .95. The company has a target debt-equity ratio of .50. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.1 percent. The company has one bond issue outstanding that matures in 25 years, a par value of $1,000, and a coupon rate of 6 percent. The bond currently sells for $1,050. The corporate tax rate is 23...