Use the information for the question(s)below.
Omicron Industries' Market Value Balance Sheet ($ Millions)
and Cost of Capital Omicron Industries New Project Free Cash Flows Assume that this new project is of average risk for Omicron and that the firm wants to hold constant its debt to equity ratio.
-Omicron's Unlevered cost of capital is closest to:
A)8.75%
B)7.10%
C)9.60%
D)7.50%

Question

Use the information for the question(s)below.
Omicron Industries' Market Value Balance Sheet ($ Millions)
and Cost of Capital  Omicron Industries New Project Free Cash Flows  Assume that this new project is of average risk for Omicron and that the firm wants to hold constant its debt to equity ratio.
-Omicron's Unlevered cost of capital is closest to:
A)8.75% 
B)7.10% 
C)9.60% 
D)7.50%

Quizplus · Accepted Answer

C)r_unlevered = 11ea7cce_3ca2_7c06_928c_77a6f705b363_TB1626_11 r_E + 11ea7cce_3ca2_7c07_928c_9320e43d3299_TB1626_11 r_D,where D = net debt = Debt - Cash r_unlevered = 11ea7cce_3ca2_a318_928c_996cea95e2f5_TB1626_11 (.12)+ 11ea7cce_3ca2_a319_928c_9519c15e7a61_TB1626_11 (.06)= .096

Use the Information for the Question(s)below