You have been asked to determine Wacc for Business point, a comprehensive web hosting service for small business. Business Point has a debt-to-equity…
You have been asked to determine Wacc for Business point, a comprehensive web hosting service for small business.
Business Point has a debt-to-equity ratio is lower that usual at 40%. The tax rate is 30%.Your asaistant has provided you with the following on comparable firms.
Firms Levered Beta D/E ratio
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Redmond 1 0.1
White Plains 1.2 0.2
So your next task is to determine the unleaveres beta of each of these firms.
Using an average of those un;evered betas estimate a levered equity beta for Business Point.
Give T-Bills are currently yielding 0.9% and the return on market is 7.2%, calculate the required return Business Point stock, according to the CAPM.
Business Point, currently, has outstanding 10-year maturity bonds with a par value of $1,000 that pay a 5% annual coupon, that are selling for 970. Calculate Business Point required return on debt.
Based on your results above, calculate the weighted average cost of capital of BusinessPoint.