Woolworths Ltd (WOW) has a debt to equity ratio of approximately 1:2. You are considering purchasing supermarket
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Question:
Woolworths Ltd (WOW) has a debt to equity ratio of approximately 1:2. You are considering purchasing supermarket business (like Woolworths) but your business will target a Debt-to-equity of 1 to 1.83 (i.e 1:/1.83).
What is the required return on equity relevant to the the new business, given:
- WOW beta of 0.95.
- risk free rate is 2.6% p.a,
- WOW and the new business can borrow at 5%p.a,
- the tax rate is 30%
- a reasonable estimate of the equity market premium is 6%.
Related Book For
Intermediate Accounting
ISBN: 978-1119048541
11th Canadian edition Volume 2
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Nicola M. Young, Irene M. Wiecek, Bruce J. McConomy
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