Current capital structure for its new apparel division

Assignment Help Operation Management

Reference no: EM13956157

An entertainment company is interested in launching a new line of clothes under the brand name XYZ in hopes of becoming an international phenomenon. They have surveyed the clothing industry and have identified Style Inc. as the closest pure-play firm for the proposed XYZ division. The company has a beta of 1.45 and is 69% equity-financed. Style Inc. has an equity beta of 2.98 and a debt-equity ratio of 3.96. The risk-free rate of return is 1.6 percent and the market risk premium is 9 percent. What cost of equity should the company use for its XYZ apparel division? Assume taxes are 35% and that the company will maintain its current capital structure for its new apparel division.

Reference no: EM13956157

Questions Cloud

The net present value of an investment : The net present value of an investment is ________.

Parties is the largest class of participants in money market : Which one of the following parties is the largest class of participants in the money market? If the state of Michigan plans to build a new toll road, which of the following bonds can be used to raise money?

Capital budgeting decision model-utilizes all cash flow : The capital budgeting decision model that utilizes all the discounted cash flow of a project is the ________ model, which is one of the single most important models in finance.

IRR Profitability Index NPV Discounted Payback Period : The ________ method is economically sound and properly ranks projects across various sizes, time horizons, and levels of risk, without exception for all independent projects. Modified IRR Profitability Index NPV Discounted Payback Period

Current capital structure for its new apparel division : An entertainment company is interested in launching a new line of clothes under the brand name XYZ in hopes of becoming an international phenomenon. They have surveyed the clothing industry and have identified Style Inc. as the closest pure-play firm..

Currently pays an annual dividend : Sam Houston Inc. currently pays an annual dividend of $5. The dividend is expected to grow at a constant rate of 5%. If the interest rate is 10%, what is the current stock price?

What would be the after-tax amount : Assume that Jane Adams pays income taxes at a 35 percent rate. What would be the after-tax amount on $100 of interest income she receives?

After we form a diversified portfolio : After we form a diversified portfolio, there is still certain amount of risk left in our investment there. Which is this type of risk?

Discount yield is always higher than bond equivalent yield : Discount yield is always lower than bond equivalent yield on the same security. Discount yield is always higher than bond equivalent yield on the same security. Discount yield is always equal to bond equivalent yield on the same security. Discount yi..

User Account

All Pages