Reference no: EM132547883

Question i. Your capital structure consists of 30% debt and 70% equity and you believe that to use more debt. The risk-free rate is 5%; the market risk premium is 6%; and the tax is 40%. The cost of equity is 14%. What would be the estimated cost of equity capital structure turns to 50% debt and 50% equity?

Question ii. You have assets of Rs.7 million with no debt, and the tax is 40%. Your net income is Rs.2 million, and you pay out 40% of earnings as dividends. Net income will grow at a constant rate of 5% per year, the outstanding shares are 200,000, and the current WACC is 15.40%. You are considering a change in capital structure with the issuance of Rs.1 million in debt which will be used to repurchase shares. After this change, your before-tax cost of debt will be 11% and the cost of equity will be 16.5%. What is the stock's current price per share before change?

Question iii. You have a capital structure consisting of 30% debt and 70% equity. There is an 8% yield to maturity. The risk-free rate is 5%, and the market risk premium is 6%. Using the CAPM, the cost of equity is currently 12.5%. There is 40% tax rate.

a. Calculate current WACC?

b. Calculate the current beta on common stock?

c. Calculate the beta if you had no debt in the capital structure, that is unlevered beta?