You wish to start a small side business, competitors in this industry have the following
costs of capital:
Firm1: re=15% rd=5% d/e=.6
Firm2: re=18% rd=5.2% d/e=.68
A. What will be a good estimate of your unlevered cost of capital for your new business?
B. If your firm will have cashflows of 3 million next year and it will grow by 2% per year what is the unlevered value of your firm?
C. If your tax rate is 35% and you wish to have a constant interest coverage ratio of 0.2, what will the levered value of your firm be?