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The company Next has 2 million shares outstanding with a market price of 30 NOK per share and a equity beta of 1

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The company Next has 2 million shares outstanding with a market price of 30 NOK per share and a equity beta of 1.5. The equity`s book value is 40 million NOK. The company has 70 million nok long term debt. The debt beta is 0. Risk free interest i 3%. The markets risk premium is 7%. The company pays 30% income tax.

 

a) What is the market value of the company equity . What does it mean when the debt beta is equal to 0.

 

b) What is the total capital cost and the equity cost.

 

c) What would the company´s equity cost be if it was financed 100% with its own equity( no debt)

 

d) What would the value of the company be if it was 100% financed with it own equity (no debt)

 

e) Explain the difference between the three different cost of capital you have calculated in b) and c).