1. Suppose you are analyzing Firm X, which currently has total assets of $650M, 35% of...

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1. Suppose you are analyzing Firm X, which currently has total assets of $650M, 35% of which is debt. The company resides in an industry with an average levered beta of 1.8 and an industry average debt/equity ratio of .3. Given this, along with a risk-free rate of 2% and a market risk premium of 9%, what is the cost of equity for Firm X if you believe the re-levered beta is the one you should use? The tax rate can be assumed to be 21% for all. a. 15.10% b. 11.59% c. 20.67% d. 18.20% 2. You invested $200,000 exactly five years ago. During that time, you earned 12%, -34%, 8%, 21%, and -2% in capital gains. In addition, the investment paid an annual dividend of $10,000 at the end of each year. This dividend cannot be reinvested, but instead earns 1% APR, compounded annually. This is your only investment. How much money do you have today at the end of those five years? a. $240,343 b. $239,333 c. $189,333 d. $260,000 1. Suppose you are analyzing Firm X, which currently has total assets of $650M, 35% of which is debt. The company resides in an industry with an average levered beta of 1.8 and an industry average debt/equity ratio of .3. Given this, along with a risk-free rate of 2% and a market risk premium of 9%, what is the cost of equity for Firm X if you believe the re-levered beta is the one you should use? The tax rate can be assumed to be 21% for all. a. 15.10% b. 11.59% c. 20.67% d. 18.20% 2. You invested $200,000 exactly five years ago. During that time, you earned 12%, -34%, 8%, 21%, and -2% in capital gains. In addition, the investment paid an annual dividend of $10,000 at the end of each year. This dividend cannot be reinvested, but instead earns 1% APR, compounded annually. This is your only investment. How much money do you have today at the end of those five years? a. $240,343 b. $239,333 c. $189,333 d. $260,000

Answer rating: 100% (QA)

1 To calculate the cost of equity for Firm X we can use the Capital Asset Pricing Model CAPM formula ... View the full answer