15-4

β = βu [ 1 + (1-T)(D/E) ]

β
βu = 𝐷
[1+(1−𝑇)( )]
𝐸

1,2
= 3
[1+(1−0,4)(7)]

= 0,954

∴ Hicom‘s unlevered beta = 0,954

15-8

D = 25 % Rrf = 5 % tax = 40 %

E = 75 % RPm = 6 cost of equity = 14 %

Rs = Rrf + (Rm – Rrf) β

14% = 5 % + 6 % β

9% = 6%β

βL = 1,5

βL
βu = 𝐷
[1+(1−𝑇)( )]
𝐸

1,5
= 25
[1+(0,6)(0,75)]

1,5
=
1,2

= 1,25
 𝐷
New βL = βu [1 + (1 − 𝑇) (𝐸 )]

0,5
= 1,25[(1 + (1 − 0,4) (0,5)]

= 1,25 (1,6)

=2

Estimated cost of equity :

Rs = 5 % + 6 % (2)

= 5 % + 12 %

= 17 %

15-10

a. Fixed cost B = $120.000

Variable cost = $4/unit
Sales price = $8/unit
Fixed cost A = $80.000
200−80
Variable cost =
25 𝑈𝑛𝑖𝑡
= $4,8/unit
200
Sales price = 25

= $8/unit
b. Firm B has a higher operating leverage, because BEP firm B in quantity 30.000 units,
and BEP firm A in quantity 25.000 units.
c. PA x Q – Fc4 – Vc4.Q = PB x Q – FCB –VCB.Q
8Q – 80.000 – 4,8Q = 8Q – 120.000 - 4Q
3,2Q – 80.000 = 4Q – 120.000
-0,8Q = -40.000
40.000
Q = = 50.000
0,8

Both firm earn the same operating profit ofsales level of 50.000 unit.
15-11

D = 20 % Cost of equity = 12,5%

E = 80 % tax = 40 %

YTM = 8 %

RrF = 5 %

RPM = 6 %

a. WACC ?
WACC = Wd (Rd) (1-T) + Wc (Rs)
= 0,2 (0,08)(0,6) + 0,8 (0,125)
= 0,0096 + 0,1
= 0,1096
= 10,96 %
b. β ?
Rs = RrF + (Rm – RrF) β
0,125 = 0,05 + 0,06 β
0,075 = 0,06 β
β = 1,25
c. βu = ? D=0
βL
βu = 𝐷
[1+(1−𝑇)( )]
𝐸

1,25
= 0
[1+(0,6)( )]
8

= 1,25

𝐷
d. βL= βu[1 + (1 − 𝑇) (𝐸 )]
4
= 1,25 [1 + (1 − 0,4)(6)]

= 1,25 [1 + 0,4]
= 1,25 [1,04]
= 1,3
 New cost of equity :
Rs = 5 % + 6% (1,3)
= 5 % + 7,8 %
= 12,8 %
e. WACC = Wd (Rd) (1-T) + Wc (Rs)
= 0,4 (0,095) (0,6) + (0,6)(0,128)
= 0,0228 + 0,0768
= 0,0996
= 9,96 %
f. Yes, because it would result in reduced WACC (9.96% < 10.96%), reduced WACC
means reduced cost.