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    M&A evaluation for HiFlyer Corporation

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    HiFlyer Corporation does not currently have any debt. Its tax rate is .4 and its unlevered
    beta is estimated by examining comparable companies to be 2.0. The 10-year bond rate is
    6.25%, and the historical risk premium over the risk-free rate is 5.5%. Next year, HiFlyer
    expects to borrow up to 75% of its equity value to fund future growth.
    a. Calculate the firm's current cost of equity.
    b. Estimate the firm's cost of equity after it increases its leverage to 75% of equity.

    © BrainMass Inc. brainmass.com June 4, 2020, 1:25 am ad1c9bdddf
    https://brainmass.com/business/mergers-and-acquisitions/ma-evaluation-hiflyer-corporation-398967

    Solution Summary

    The expert calculates the firm's current cost of equity and estimates the firm's cost of equity after it increases its leverage to 75% of equity.

    $2.19

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