If holland acquires workman it will increase the debt to 60


Holland Auto Parts is considering a merger with Workman Car Parts. Workman's market-determined beta is 0.9, and the firm currently is financed with 20% debt, at an interest rate of 8%, and its tax rate is 25%. If Holland acquires Workman, it will increase the debt to 60%, at an interest rate of 9%, and the tax rate will increase to 35%. The risk-free rate is 6% and the market risk premium is 4%. What will Workman's required rate of return on equity be after it is acquired?

Solution Preview :

Prepared by a verified Expert
Finance Basics: If holland acquires workman it will increase the debt to 60
Reference No:- TGS01387315

Now Priced at $10 (50% Discount)

Recommended (93%)

Rated (4.5/5)