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Unformatted text preview: R(e)*Equity% + R(d)*Debt % * (1-tax rate) At the original WACC, the new product is a positive NPV (on a perpetuity basis) 2. Calculate Pure Play Asset Beta However, when adjusting for appropriate asset beta from the pure play, and then relevering, it's a negative NPV PP Equity Beta (Be) 1.5 PP EQ% 90% PP Debt% 10% PP Tax Rate 40% Asset Beta (Ba)= 1.40625 B(e) / (1+ ((D/E)*(1-tax))) 3. Relever Asset Beta for Exisiting Capital Structure Asset Beta (Ba)= 1.40625 PP EQ% 70% PP Debt% 30% PP Tax Rate 35% Equity Beta (Be) 1.797991 4. Calculate New R(e) & new WACC R(e) = 18.28% R(f) + Beta * R(p) WACC = 13.77% R(e)*Equity% + R(d)*Debt % * (1-tax rate)...
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This note was uploaded on 02/27/2012 for the course BUSI 407 taught by Professor Bowen during the Spring '11 term at UNC.
- Spring '11