Swyft is a private startup firm that operates peer-to-peer ride sharing service. The firm has business risk
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Question:
Swyft is a private startup firm that operates peer-to-peer ride sharing service. The firm has business risk similar to that of Uber Technologies Inc. (NYSE: UBER). To evaluate Swyft, a venture capitalist has collected the following information:
- Swyft has financed 40% of its total investment using debt and plans to maintain its current leverage ratio in the future.Its debt beta is estimated at 0.1.
- Swyft faces a marginal tax rate of 30%.
- Uber has market capitalization (i.e., equity) worth $30 billion and debt worth $30 billion. Its equity beta and debt beta, respectively, are estimated at 1.3 and 0.1.
- Uber's marginal tax rate is zero.
- The risk-free rate is 3% and the market risk premium is 6%.
- Determine the unlevered asset beta and unlevered cost of capital for Swyft.
- Find the weighted average cost of capital (WACC) for Swyft.
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