Pohio Incorporation is considering investing in a new business. An existing company in the target industry...
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Pohio Incorporation is considering investing in a new business. An existing company in the target industry has an equity beta of 1.25 but is financed with a market value, equity-to-value ratio 60%. Pohio Incorporation intends to use an equity-to-value ratio of 70% for this new business. Required: Estimate the beta to use in estimating a cost of equity in this new business. If the market risk premium is 6%, what is the cost of equity in percentage per year? The risk free rate is 4%. Pohio Incorporation is considering investing in a new business. An existing company in the target industry has an equity beta of 1.25 but is financed with a market value, equity-to-value ratio 60%. Pohio Incorporation intends to use an equity-to-value ratio of 70% for this new business. Required: Estimate the beta to use in estimating a cost of equity in this new business. If the market risk premium is 6%, what is the cost of equity in percentage per year? The risk free rate is 4%.
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Answer rating: 100% (QA)
Estimate the beta for the new business we can use the concept of leveraged beta Given Unle... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
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