Question 40

A company is estimating its optimal capital structure. Now the company has a capital structure that consists of 20% debt and 80% equity, based on market values (debt to equity D/S ratio is 0.25). The risk-free rate (r_RF) is 5% and the market risk premium (r_M r_RF) is 6%. Currently the companys cost of equity, which is based on the CAPM, is 14% and its tax rate is 20%. Find the firms current leveraged beta using the CAPM.

		1.0
		1.5
		1.6
		1.7

Question 41

Based on the information from Question 40, find the firms unleveraged beta using the Hamada Equation.

		0.95
		1.0
		1.25
		1.35

Question 42

Based on the information from Question 40 and 41, what would be the companys new leveraged beta if it were to change its capital structure to 50% debt and 50% equity (D/S=1.0) using the Hamada Equation?

		1.25
		1.35
		1.95
		2.25

Question 43

Based on the information from Question 40 ~ 42, what would be the companys new cost of equity if it were to change its capital structure to 50% debt and 50% equity (D/S =1.0) using the CAPM?

		13.8%
		15.6%
		16.8%
		18.5%