What would be the market value of the company's equity in the previous problem, in the following situation: if the firm were to obtain debt in the market, it would obtain it with a pre-tax cost of 30% (tax rate of 35%) . The risk-free rate in the market is 16% after taxes, while the average market return after taxes is 22%. The firm's Beta for the current capital structure (60% debt, 40% equity) is 1.43 and the firm expects to maintain that same capital structure in the future.

Answer rating: 100% (QA)

To calculate the market value of the companys equity we need to use the Capital Asset Pricing Model ... View the full answer