BLAZER TELECOM's has perpetual earnings before interest and taxes of $500 the corporate tax rate is 40%.
Question:
BLAZER TELECOM's has perpetual earnings before interest and taxes of $500 the corporate tax rate is 40%. BLAZER uses a debt-to-equity ratio of 0.75. BLAZER's cost of debt is the risk-free rate of interest. BLAZER's depreciation expenses are not tax deductible and just offset capital expenditures in each year, and changes in working capital are zero. BLAZER has a 100% payout policy. The risk-free interest rate is 8% and the "market premium" (market rate less the risk-free rate) is 8.5%. We don't know BLAZER's asset beta, but we believe Comp Co.'s assets have the same risk as BLAZER. We know the following about Comp Co.: its debt value is $13,945, its market value of equity value is $7,000, its tax rate is 36%, its debt beta is 0.3725, and its equity beta is 1.80.
Cost Of DebtThe cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking...
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Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter