Question

3)Suppose a cashless firm A has equity beta of 2, asset beta of 1, then its debt to equity ratio is ____ .

4)Suppose the asset beta of a firm is 1, ND/E ratio is 1, risk free rate is 1%, market risk premium is 5%. Calculate the expected return of your firm for new investors.
Enter the return of your firm for new investors _____%

5)Firm A is not listed, and you use comparable method to calculate its beta. ND/E for firm A is 5. The comparable firm has equity beta of 2, with ND/E of 1. Calculate the equity beta for firm A.Enter the equity beta for firm A ___:

6)All else equal, firm A has a higher tax rate than firm B. As a result, which firm has a lower WACC?

7)Firm ABC has a Moody’s credit rating of Aaa and firm EFG has a rating of Aa2. Which one has a higher cost of debt?

8)Suppose cost of equity is 5%, cost of debt is 2%, tax rate is 30%, ND/E ratio is 1. Calculate the WACC.

1)If asset A has lower volatility than asset B, then it contributes less to the overall volatility when added to a portfolio. True or false?

2)Suppose company A’s return increases by 3%, on average, when the market increases by 1%. Suppose company B’s return decreases by 6%, on average, when the market decreases by 2%. Which firm has a higher market beta?

Answer 1

(3) Equity Beta = Be = 2 and Asset Beta = Ba = 1, Let the Debt-Equity Ratio be DE

Therefore, Be = Ba x [1+DE]

2 = 1 x [1+DE]

DE = 1

NOTE: Please raise separate queries for solutions to the remaining unrelated questions as one query is restricted to the solution of only one complete question with up to four sub-parts.