Wacc Problem

Question 1

1 / 1 pts

Grokster Holdings has a levered beta of 1.8 with a D/E ratio of 3.3 . The tax rate is 30%. Assuming debt is risk-free, estimate the unlevered equity beta.

Correct!

0.5438

Correct Answer

0.5 margin of error +/- 0.1

BU = BL / [1 + (1-T)(DE Ratio)]

Question 2

1 / 1 pts

Your firm's beta is 2.8, comparable T-bond rates are 1.0, and the market risk premium is 2.0. Calculate the required return on your stock.

Enter as ##.#% without the % sign.

Correct!

6.6000

Correct Answer

6.6 margin of error +/- 0.1

Re = Rf + B * MRP

Question 3

1 / 1 pts

Swamp and Sand Industries has outstanding debt of 40.0and equity of 40.0. Calculate the debt as a percentage of total assets.

Enter as a percentage ##.# but do not enter percentage sign.

Correct!

50.0000

Correct Answer

50.0 margin of error +/- 1.0

% Debt = Debt / Assets Since Assets = Debt + Equity. % Debt = Debt / (Debt + Equity)

Question 4

1 / 1 pts

Swamp and Sand Industries has outstanding debt of 55.0 and equity of 99.0. Calculate the equity as a percentage of total assets.

Enter as a percentage ##.# but do not enter percentage sign.

Correct!

64.2857

Correct Answer

64.3 margin of error +/- 1.0

Assets = Debt + Equity % Equity = Equity / Assets % Equity = (Debt + Equity)

Question 5

1 / 1 pts

St. Louis Brewing Co. has an unlevered beta of 1.3 , however, they want to add debt until their debt-to-equity ratio is 4.5 . Currently, they have a tax rate of 20%. Calculate the new levered beta.

Correct!

5.9800

Correct Answer

6.0 margin of error +/- 0.1

BL = BU*[1+(1-T)*(D/E)]

Question 6

1 / 1 pts

Webster Global Parnters (WGP) is evaluating an investment in Pulang, SA., a distributor of home appliances. As with any venture capitalist, they seek to sell out after 5 years. WGP estimates a required rate of return of 10.2%. After five years the growth rate is project to be 3.3% per year. Free cash flow in year 5 is expected to be $132.0 million. Pulang is expected to be sold at its terminal value. Calculate the terminal value.

Enter answer as ##.#, to one decimal point. Do not discount.

Correct!