Consider the following information for the following questions: TAMU Inc. is for sale, with a price...

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Consider the following information for the following questions: TAMU Inc. is for sale, with a price tag of $1,200,000. Your company, ABC, is considering a merger. Both companies have an exact cost of capital values (WACC). Both companies have a beta of 1.5, the market is expected to have a 19% return, and the risk-free rate is 3.5%. The forecasted free cash flows for the next 4 years for TAMU are $250,000 (FCF1), $150,000 (FCF2), $0 (FCF3), and $250,000 (FCF4). The company is expected to grow at 5% for the foreseeable future after that. Both companies have a debt/equity ratio of 1/3, and the applicable tax rate is 35% (for both companies). Both companies have a cost of debt (before taxes) of 7%. What is the cost of equity for both companies? Consider the following information for the following questions: TAMU Inc. is for sale, with a price tag of $1,200,000. Your company, ABC, is considering a merger. Both companies have an exact cost of capital values (WACC). Both companies have a beta of 1.5, the market is expected to have a 19% return, and the risk-free rate is 3.5%. The forecasted free cash flows for the next 4 years for TAMU are $250,000 (FCF1), $150,000 (FCF2), $0 (FCF3), and $250,000 (FCF4). The company is expected to grow at 5% for the foreseeable future after that. Both companies have a debt/equity ratio of 1/3, and the applicable tax rate is 35% (for both companies). Both companies have a cost of debt (before taxes) of 7%. What is the cost of equity for both companies?

Answer rating: 100% (QA)

The cost of equity for both companies ca... View the full answer