Current Equity 2 Flashcards
(7 cards)
1
Q
Asset beta of the combined company
A
Big company beta x market equity/ ( market equity + equity value)
+
Small company asset beta x equity value / (market equity+ equity value)
2
Q
Equity beta of combined company
A
Asset beta x ( equity ratio + debt ratio x 1- sales revenue for the future) / equity ratio
3
Q
Cost of equity
A
Government borrowing rate + equity beta x risk premium
4
Q
Cost of debt
A
Usually given
5
Q
Cost of capital
A
Cost of equity x equity ratio/ 100
+
Cost of debt x debt ratio / 100 x asset beta
6
Q
Required premium e
A
Equity x debt ratio
7
Q
Gain created shareholders
A
Equity value of combined company - required company - market equity
