In the table below (in $000) a shortened balance sheet of a company is presented: Assets...
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In the table below (in $000) a shortened balance sheet of a company is presented: Assets Debt and equity 400 1 800 400 Total 2 600 2 600 There are 120 000 shares outstanding and their current market price is $5. a) Compute the cost of equity if coefficient beta is 1.4, the risk-free rate is 4% and the market risk premium is 10%. b) What is the weighted average cost of capital of the company, if the cost of debt is 9% and the tax rate is 30%? Current assets Fixed assets 500 2 100 Short-term liabilities. Long-term liabilities Equity Total In the table below (in $000) a shortened balance sheet of a company is presented: Assets Debt and equity 400 1 800 400 Total 2 600 2 600 There are 120 000 shares outstanding and their current market price is $5. a) Compute the cost of equity if coefficient beta is 1.4, the risk-free rate is 4% and the market risk premium is 10%. b) What is the weighted average cost of capital of the company, if the cost of debt is 9% and the tax rate is 30%? Current assets Fixed assets 500 2 100 Short-term liabilities. Long-term liabilities Equity Total
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SOLUTION a To compute the cost of equity we can use the Capital Asset Pricing Model CAPM formula Cost of Equity RiskFree Rate Beta Market Risk Premium ... View the full answer
Related Book For
Auditing The Art and Science of Assurance Engagements
ISBN: 978-0134613116
14th Canadian edition
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones
Posted Date:
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