Toy corp is attempting to estimate its optimal capital


Toy Corp. is attempting to estimate its optimal capital structure. Currently, the company's cost of equity, which is based on the CAPM, is 12.0% and the risk free rate and equity market risk premium are 4.0% and 6.0%, respectively. Outside analysts inform Toys management team that the company's most optimal capital structure would have a mix of 40% debt and 60% equity. Assuming the company's current capital structure consists of 20% debt and 80% equity, and its tax rate is 35%, what must Toy Corp.'s unlevered beta be? the answer is 1.15, will you show the work for this?

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Financial Management: Toy corp is attempting to estimate its optimal capital
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