Jayhawks decided to acquire Tarheels corporation. Because Jayhawks is larger, after the acquisition, the combined company...
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Jayhawks decided to acquire Tarheels corporation. Because Jayhawks is larger, after the acquisition, the combined company will use Jayhawks cost of debt and Jayhawks Debt and Equity percentages You need to find an appropriate discount rate with which to discount Tarheels' future cash flows. What weighted average cost of capital should be used to evaluate Tarheels? Your supervisor has given you the unlevered (asset) beta to use, and has told you to calculate the levered (equity) beta using the appropriate D/E ratio (Hint: The equity beta is the levered beta; the unlevered beta is known as the asset beta) Unlevered beta JayHawks tax rate Interest rate on debt Risk free rate Market risk premium 0.9 30% 7.00% 3.50% 5.00% JayHawks has $60 million in interest-bearing debt. The bonds are selling at par. JayHawks' stock is trading at $80 per share. There are 1 million shares of JayHawks' stock outstanding. Hint: You need to use the Hamada equation; calculate a cost of equity, and then use weighted average cost of capital equation a. What is the new levered beta? b. What is the cost of equity that JayHawks will use for this acquisition? c. What is the weighted average cost of capital that will be used to evaluate Tarheels? Jayhawks decided to acquire Tarheels corporation. Because Jayhawks is larger, after the acquisition, the combined company will use Jayhawks cost of debt and Jayhawks Debt and Equity percentages You need to find an appropriate discount rate with which to discount Tarheels' future cash flows. What weighted average cost of capital should be used to evaluate Tarheels? Your supervisor has given you the unlevered (asset) beta to use, and has told you to calculate the levered (equity) beta using the appropriate D/E ratio (Hint: The equity beta is the levered beta; the unlevered beta is known as the asset beta) Unlevered beta JayHawks tax rate Interest rate on debt Risk free rate Market risk premium 0.9 30% 7.00% 3.50% 5.00% JayHawks has $60 million in interest-bearing debt. The bonds are selling at par. JayHawks' stock is trading at $80 per share. There are 1 million shares of JayHawks' stock outstanding. Hint: You need to use the Hamada equation; calculate a cost of equity, and then use weighted average cost of capital equation a. What is the new levered beta? b. What is the cost of equity that JayHawks will use for this acquisition? c. What is the weighted average cost of capital that will be used to evaluate Tarheels?
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Related Book For
Fundamentals Of Corporate Finance
ISBN: 9781265553609
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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