A consulting company looked into a company within the groceries retail industry and found out that...
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A consulting company looked into a company within the groceries retail industry and found out that it has a beta of 0.6 and a capital structure reflected in a D/E of 0.8 (cost of debt of that company is 2%). They also found out that the expected equity market risk premium is 5% and that the risk- free rate is 2%. Consider a tax rate of 30%. If you want to invest in a similar supermarket but without any debt in the capital structure, what should be the cost of equity? What would be the WACC if you wanted to invest in this market with a capital structure with 50% Debt (with a cost of 2%) and 50% Equity? A consulting company looked into a company within the groceries retail industry and found out that it has a beta of 0.6 and a capital structure reflected in a D/E of 0.8 (cost of debt of that company is 2%). They also found out that the expected equity market risk premium is 5% and that the risk- free rate is 2%. Consider a tax rate of 30%. If you want to invest in a similar supermarket but without any debt in the capital structure, what should be the cost of equity? What would be the WACC if you wanted to invest in this market with a capital structure with 50% Debt (with a cost of 2%) and 50% Equity?
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Cost of equity without debt 500 WACC 340 If you want to invest in a similar supermarket ... View the full answer
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