You are trying to evaluate a private firm's potential as a good investment opportunity. Your mentor at the investment bank you interned during the summer told you to collect information on comparable firms, which will help you find the WACC of the private firm. The private firm has ND/E ratio of 2. The risk free rate is 2%. Market risk premium is 5%. Cost of debt for the private firm is assumed is 6%. The tax rate is 50%.

The following table lists the information you have gathered:

 Q1. What is the net debt for firm A?

Q2. Calculate the asset beta for firm D.

Q3. What is the average asset beta you should use combining all the comparable firms?

Q4. What is the equity beta for the private firm?

Q5. What is the cost of equity for the private firm?

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Firm A B C () D Beta Equity 1.3 1.1 0.9 0.8 Equity (Million) 20 15 10 5 Debt (Million) 11 8 6 7 Cash (Million) 6 2 3 2 Firm A B C () D Beta Equity 1.3 1.1 0.9 0.8 Equity (Million) 20 15 10 5 Debt (Million) 11 8 6 7 Cash (Million) 6 2 3 2

Answer rating: 100% (QA)

Q1 To calculate the net debt for firm A we need to subtract the cash from the total debt Net debt Total debt Cash Net debt for firm A 11 Million 6 Mil... View the full answer