Question: Given the following information please find the implied beta (leveraged) for the firm, and then calculate the new leveraged beta and the new WACC if

Given the following information please find the implied beta (leveraged) for the firm, and then calculate the new leveraged beta and the new WACC if the firm borrows additional $1250 Million

Market value of equity

1,000

Market value of debt

3000

Cost of equity capital in US dollars =

9.20%

Risk Free rate

5%

ERP

3%

Interest Rate on Debt

6%

Tax Rate

40%

Hint: use cost of equity capital to get implied leveraged beta, use it to calculate unleveraged beta, recalculate the leveraged beta after adding new debt, calculate new weights on debt and equity and the new WACC.

Answer WACC

a. 15.20%

b. 10.80%

c. 4.90%

d. 2.92%

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