00:01
In this video, we're going to be calculating the estimated cost of equity.
00:06
So let's write out our given.
00:08
We know the weight of debt is 0 .25.
00:16
And we also know the weight of equity is going to be 0 .75.
00:23
This is also our given.
00:29
So we're going to take these values, so wd divided by w of e.
00:39
So 0 .25 divided by 0 .75.
00:44
And we get one third.
00:47
This is going to be our ratio, our debt to equity ratio.
00:56
So our risk -free rate is 0 .5%.
01:05
5%.
01:06
And our market risk premium, our rmrp, is equal to 6%.
01:14
Percent our tax rate which is 25 percent and the cost of equity current costs of equity so c of c oa e is equal to 11 .5 percent so now let's find the beta of the current level so b is going to be equal to r which is our um our tax minus our rf, sorry, our rate, that's our rate, not tax, all right, and then divided by the market rate premium.
02:20
Okay, so let's put in our value, so we have 11 .5, minus 5, divided by 6, which is going to give us 1 .0833.
02:35
So now we're going to find the unlovered data.
02:40
Which is b of u is going to be equal to b of l, which is b a beta levered, leveraged, levered, 1, divided by 1 plus the debt to equity ratio times 1 minus the tax, which is going to be equal to 1...