Solution-Compute the cost of levered equity

Compute the cost of levered equity

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You need to compute the cost of levered equity for your newly established company. You are planning to keep a constant debt-to-value ratio of 0.4. The(annualized)overnight interest rate(riskfree)is now equal to 3,08% and you expect the annual market risk premium for the future to be equal to 2.56%.

	My company	Company 1
D/E ratio	0.67	0
Beta debt		0
Beta estimates from stock price		-0.016418

Company 1 have no debt. Corporate tax rate is 35%.

You think that the closes comparable company to yours is Company 1. Using company one data estimate the unlevered beta for my company. What is the estimate of the levered return on equity for my company?

Reference no: EM133069691

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Compute the cost of levered equity

Reference no: EM133069691

Reference no: EM133069691

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