Find the cost of equity of company, Cost Accounting

Outdoor Travel Inc. needs to estimate the cost of capital for the evaluation of capital

expenditures. A typical project is financed with 25% debt-to-value ratio (i.e., D/(D+E) = 0.25). Travel

Anywhere Inc., a publicly traded firm in the same business as Outdoor Travel, is financed with 20% debtto-value ratio and has a Beta of 0.9. For both corporations, the cost of debt is 8% and the corporate tax rateis 35%. Assume that the risk free rate is 4% and the expected market risk premium is 7%.

a) Find the cost of equity of Outdoor Travel Inc.

b) Find the WACC for Outdoor Travel Inc.

Posted Date: 3/4/2013 7:28:54 AM | Location : United States







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