(Answered) Woolworths ltdnbspwow has a debt to equity ratio of

Finance

Woolworths Ltd (WOW) has a debt to equity ratio of approximately 1:2. You are considering purchasing supermarket business (like Woolworths) but your business will target a Debt-to-equity of 1 to 1.29 (i.e 1:/1.29).

What is the required return on equity relevant to the the new business, given:

- WOW beta of 0.95.

- risk free rate is 2.6% p.a,

- WOW and the new business can borrow at 5%p.a,

- the tax rate is 30%

- a reasonable estimate of the equity market premium is 6%.

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