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Cybermatic Corp currently has no debt in its capital structure.

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Cybermatic Corp currently has no debt in its capital structure. The company's unlevered beta is 1.15;and its cost of equity is 12.78%. The WACC equals 12.78%, because there is no debt. The risk free;rate is 3% and the market risk premium is 8.5% and marginal tax rate is 45%.;Cybermatic is examing how different levels of debt will affect its costs of debt & equity.;D/A RATIO E/A RATIO D/E RATIO BOND RATING BEFORE TAX COST OF DEBT LEVERED BETA COST OF EQUITY WACC;0.0 1 0.00 - - 1.15 12.78% 12.78%;0.2 0.8 0.25 A 8.4% 14.14% 12.24%;0.4 0.6 0.67 BBB 8.9% 1.57 16.35% (1);0.6 0.4 1.5 BB 11.1% 2.10 12.00%;0.8 0.2 C 14.3% 3.68 34.28% (2);D/E RATIO: 3.6, 4.0, 2.8, 3.4;LEVERED BETA: 1.31, 1.38, 1.44, 1.05;COST OF EQUITY: 21.89, 18.77, 20.85, 17.72;WACC;(1) 10.59, 15.3, 11.77, 12.95;(2) 11.84, 10.52, 9.86, 13.15;Attachment Preview;Cybermatic Corporation.xlsx;CybermaticCorpcurrentlyhasnodebtinitscapitalstructure.Thecompany'sunleveredbetais1.15;anditscostofequityis12.78%.TheWACCequals12.78%,becausethereisnodebt.Theriskfree;rateis3%andthemarketriskpremiumis8.5%andmarginaltaxrateis45%.;Cybermaticisexaminghowdifferentlevelsofdebtwillaffectitscostsofdebt&equity.;D/A;RATIO;E/A;RATIO;D/E;RATIO;BOND;RATING;0.0;0.2;0.4;0.6;0.8;1;0.8;0.6;0.4;0.2;0.00;0.25;0.67;1.5;A;BBB;BB;C;BEFORE;TAXCOST LEVERE COSTOF;OFDEBT DBETA EQUITY WACC;8.4%;8.9%;11.1%;14.3%;D/ERATIO:3.6,4.0,2.8,3.4;LEVEREDBETA:1.31,1.38,1.44,1.05;COSTOFEQUITY:21.89,18.77,20.85,17.72;WACC;(1)10.59,15.3,11.77,12.95;(2)11.84,10.52,9.86,13.15;1.15;1.57;2.10;3.68;12.78%;14.14%;16.35%;34.28%;12.78%;12.24%;12.00%;(1);(2)

 

Paper#34360 | Written in 18-Jul-2015

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