Question 7 Given the following information for three publically traded comparable companies, estimate the the cost of capital for an all equity financed private company in the same industry using the average industry data from the comparable public companies. The data is also included in the exam exhibit file for convenience. Levered Company Ticker Beta Debt Equity DebUEquity Freds FRD 1.96 50.0 120.0 0.42 SOB REC Sobokawa 1.29 5.0 275.0 0.02 Reclining 1.63 115.0 533.0 0.22 BBB Corp Bond Yield 12.13% 30 Year Treas. Bond Yield 7.25% Est. Mkt. Risk Prem. 7.0%
Question 7 Given the following information for three publically traded comparable companies, estimate the the cost of capital for an all equity financed private company in the same industry using the average industry data from the comparable public companies. The data is also included in the exam exhibit file for convenience. Levered Company Ticker Beta Debt Equity DebUEquity Freds FRD 1.96 50.0 120.0 0.42 SOB REC Sobokawa 1.29 5.0 275.0 0.02 Reclining 1.63 115.0 533.0 0.22 BBB Corp Bond Yield 12.13% 30 Year Treas. Bond Yield 7.25% Est. Mkt. Risk Prem. 7.0%
Chapter12: Capital Structure
Section: Chapter Questions
Problem 9PROB
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![Question 7
Given the following information for three publically traded comparable
companies, estimate the the cost of capital for an all equity financed private
company in the same industry using the average industry data from the
comparable public companies. The data is also included in the exam exhibit file
for convenience.
Levered
Company
Ticker Beta
Debt Equity DebUEquity
Freds
FRD
1.96
50.0 120.0 0.42
SOB
REC
Sobokawa
1.29
5.0 275.0 0.02
Reclining
1.63
115.0 533.0 0.22
BBB Corp Bond Yield 12.13%
30 Year Treas. Bond Yield 7.25%
Est. Mkt. Risk Prem. 7.0%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F633e5403-239a-44c3-8b31-a95657f5f0d1%2F268aac91-1ad2-4d6e-b731-b264050a3a5a%2Fawv5fiq_processed.png&w=3840&q=75)
Transcribed Image Text:Question 7
Given the following information for three publically traded comparable
companies, estimate the the cost of capital for an all equity financed private
company in the same industry using the average industry data from the
comparable public companies. The data is also included in the exam exhibit file
for convenience.
Levered
Company
Ticker Beta
Debt Equity DebUEquity
Freds
FRD
1.96
50.0 120.0 0.42
SOB
REC
Sobokawa
1.29
5.0 275.0 0.02
Reclining
1.63
115.0 533.0 0.22
BBB Corp Bond Yield 12.13%
30 Year Treas. Bond Yield 7.25%
Est. Mkt. Risk Prem. 7.0%
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Step 1 Computation of cost of capital of FREDS
VIEWStep 2 Computation of cost of capital of FREDS
VIEWStep 3Computation of cost of capital of FREDS
VIEWStep 4 Computation of cost of capital of SOBOKAWA
VIEWStep 5 Computation of cost of capital of SOBOKAWA
VIEWStep 6 Computation of cost of capital of SOBOKAWA
VIEWStep 7 Computation of cost of capital of RECLINING
VIEWStep 8 Computation of cost of capital of RECLINING
VIEWStep 9 Computation of cost of capital of RECLINING
VIEWStep 10 Computation of cost of capital of all equity financed private company
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