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linda_us
linda_us, Master's Degree
Category: Single Problem
Satisfied Customers: 787
Experience:  A tutor for Business, Finance, Accounts and other related topics.
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Are you available to help me out with two calculations? I

Customer Question

Hi *****,
Are you available to help me out with two calculations?
I need the cost of debt financing and the cost of equity financing computed using the following formulas:
- Cost of debt = Annual Interest Payment / Market Value of Debt
- Cost of Equity formula = rE = rf + β(rM - rf) where
rf = the 'Risk Free' rate of return
β = the firm's 'Beta'; the correlation between the firm's returns and the market
rM = the historical "Market" return
Submitted: 7 months ago.
Category: Single Problem
Expert:  Donna Kakonge replied 7 months ago.

Dear Customer,

I wish I knew the answer to that one. I am not really familiar with formulas such as though, however I could work it out without the formulas with added information. Would that work for you?

Thanks,

Donna

Customer: replied 7 months ago.
I actually need the formulas on this one :(Would you be able to open this question to see if any other experts are available to help me with this?
Expert:  Donna Kakonge replied 7 months ago.

Dear Customer,

Yes! For sure! I am sure you can find another expert to help you with this question. Please do feel to request me again for other work that you have that I can help you with and thank you for requesting me.

Kindest regards,

Donna

Customer: replied 7 months ago.
Thank you for getting back to me so quickly
Expert:  F. Naz replied 7 months ago.

Hello

can you please explain your requirement in detail as formulas are already given by you so what you want in addition?

Customer: replied 7 months ago.
I need these formulas calculated for the merger between office Depot and Staples (Office Depot being the acquiring company)
Expert:  F. Naz replied 7 months ago.

Is this your assignment question?

Customer: replied 7 months ago.
Customer: replied 7 months ago.
This is not the entire assignment, just a very small portion that I am needing help with.
Expert:  Manal Elkhoshkhany replied 7 months ago.

Hello,

Please post the full question so that I can help you. I need to see the data so that I can provide the solution

Thank you

P.S. When you respond, please advise your deadline

Customer: replied 7 months ago.
This is what I have as of right now:
- Cost of debt = Annual Interest Payment / Market Value of Debt
Annual interest payment = $139M
Market Value of debt = E((1-(1/(1+R)^Y))/R+T/(1+R)^Y
E=annual interest expense = $139M
R=cost of debt = 7%
T=Total debt = $4,796M
Y=Average maturity in yrs = ????
- Cost of Equity formula = rE = rf + β(rM - rf) where
rf = the 'Risk Free' rate of return = 12.39%
β = the firm's 'Beta'; the correlation between the firm's returns and the market = 1.55
rM = the historical "Market" return = 10.6%I'm not sure if all of this is correct though
Expert:  Manal Elkhoshkhany replied 7 months ago.

Hi,

There is something strange in the data you have provided (the risk free rate of return is higher than historical market return. This could be correct, but usually the risk free rate is much lower than market return). The Cost of Debt needs to be calculated on an After-tax basis so it would be better if you provide me with the full original problem so that I can check whether your calculations are correct and then tell you how to apply the formulas you have posted

Thank you

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