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Calculate hiflyer current cost of equity

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Reference no: EM133022998

Question - HiFlyer Corporation does not currently have any debt. Its tax rate is 0.3 and its unlevered beta is estimated by examining comparable companies to be 1.5. The 10-year Treasury bond rate is 3.25% and the historical risk premium over the risk free rate is 5.0%. Next year, HiFlyer expects to borrow up to 50% of its equity value to fund future growth.

Required -

(a) Calculate HiFlyer's current cost of equity (with no debt).

(b) Estimate HiFlyer's cost of equity after it increases its leverage to 50% of equity.

Reference no: EM133022998

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