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Cherry Diamond (CD) is currently financed with 60% debt at an interest rate of 12%.

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Cherry Diamond (CD) is currently financed with 60% debt at an interest rate of 12%. Additional financial data for CD are as follows: Total debt outstanding is currently $20 million, pre-merger beta (BL) is 2, and post-merger tax rate will be 20%. Assume the risk-free interest rate is 8%, and market risk premium (i.e. market return minus riskfree interest rate) is 5%. Using the CAPM, calculate WP's cost of levered equity, i.e. calculate rEL.;Year 1 2 3 4;FCF $5 $6 $8 $10;Interest expenses $2 $2 $4 $4;Unlevered horizon value (UHV4) $200;Horizon value interest tax savings (HVITS4) $40;Additional Requirements;Min Pages: 1;Level of Detail: Show all work;Other Requirements: Please show step by step soluton

 

Paper#29421 | Written in 18-Jul-2015

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