UID: 223327
帖子: 324
主题: 105
注册时间: 2011-7-11
最后登录: 2013-10-21

1^# 跳转到 »

发表于 2011-7-11 18:40 | 只看该作者

Because I'm such a nice guy.

unlevered b=levered b/(1+(1-T)(D/E))
unlevered b=1.3/(1+(.75)(2))
unlevered b=.52

Now relever

levered b=unlevered b(1+(1-T)(D/E))
levered b=.52(1+(.7)(2.3))
levered b=1.357

ke=rfr + b(mr-rfr)
ke=3 + 1.357(9-3)
ke=11.14

kd=yield*(1-t)
kd=12*(.7)
kd=8.4

Now solve for WACC. Be careful with the D/E ratio.

We=1/3.3=.303
Wd=1-We=.697

WeKe + WdKd=WACC (we already did the tax stuff)
.303*11.14 + .697*8.4= 9.22

TOP

cchang

CFA Candidates

Rank: 2

UID: 223302
帖子: 226
主题: 103
注册时间: 2011-7-11
最后登录: 2016-4-19

2^#

发表于 2011-7-11 18:40 | 只看该作者

If you see a problem like this on the test, you'll hear a chorus of groans from all of the Level I candidates when they see this question, don't even bother doing it until you've finished every other question.

You need to unlever your Beta with Hodgkins data and then relever using Degen data. Then you plug this Beta into CAPM to solve for Ke. Using the D/E ratio of Degen solve for the WACC components with the given inputs and adjust your debt for Tax.

The answer is C.

TOP

glamorous

CFA Candidates

Rank: 2

UID: 217603
帖子: 193
主题: 158
注册时间: 2011-5-23
最后登录: 2012-9-12

3^# 倒序看帖

打印

字体大小: tT

发表于 2011-7-11 18:40 | 只看该作者

Beta??

commercial, currently, printing, business, expected

Degen Company is considering a project in the commercial printing business. Its debt currently has a yield of 12%. Degen has a leverage ratio of 2.3 and a marginal tax rate of 30%. Hodgkins Inc., a publicly traded firm that operates only in the commercial printing business, has a marginal tax rate of 25%, a debt-to-equity ratio of 2.0, and an equity beta of 1.3. The risk-free rate is 3% and the expected return on the market portfolio is 9%. The appropriate WACC to use in evaluating Degen’s project is closest to:

A) 8.6%.

B) 8.9%.

C) 9.2%.

what do u think??