1. XYZ corp is a private company without publiclytraded equity. you need to determine what XYZ's equity Beta wouldbe if the company decided to go public. XYZ target equity ratio is75%. below are XYZ 3 closet competitors.
Alsace. Beta=1.44. debtratio=0.54
Parasol. Beta=1.12. debtratio=0.22
Univex. Beta=1.36. debtratio=0.42
what is XYZ expected equity beta?
2. assume that risk free rate of 1.55% and an equitymarket risk premium of 5.5%,what is XYZ equity cost of capital(re)?if you were unable to calculate XYZ in question 1,use a beta 1.21for this calculation.
3. assume XYZ cost of debt is 200 basis points overthe risk free rate,what is XYZ WACC? use tax rate of 25%. if youdidn't calculate re in question 2 ,use 7.5 as XYZ equitycapital.
4. what happens to XYZ WACC if tax rate increase to35% . what generalization can you make about the relationshipbetween corporate tax rate and company's WACC?
5. debt is cheaper that equity, so if XYZ changed itstarget equity ratio from 75% to 65% would reduce XYZ's WACC? why orwhy not? what happens to the cost of debt as leverage isincrease?how does leverage affect equity beta?
please try to answer all my questions. its veryimportant.
