Question about CAMP and WACC

timer Asked: Nov 11th, 2016

Question description

Hello and thank you so much for your time and the opportunity that i have to get some help for a "big" homework problem

First of all i'm from Greece and sorry if my English aren't good enough

My homework is this one : 

The beta coefficient of assets of Gamma Airlines is 1.5. The risk free rate is 6% and the market risk premium is 8%. It is assumed that the capital assets pricing model (CAPM) is correct. Gamma is taxed at a maximum rate of 35%. Draw a graph to present the cost equity (costofequity) and the weighted average cost of capital (WACC) after tax of Gamma as a function of debt ratio same D / E capital with timestouD / Eapo 0 to 1.0 (the price change is 0.05). Consider assumed that debt Gamma is zero risk to D / E = 0,25. Then afxanetaikata rate of 0.1% in each afxisitou D / E of 0.05, reaching 6.5% with D / E = 0.5, 7% with D / E = 0.8 and 8% by D / E = 1,0. (You can make the assumption that the overall coefficient beta of the company (b A) is unaffected by the capital structure or the taxes it saves because interest expense is tax deductible.)

also there is a labeling ¨:About the following item of precedence of Issue 3: "Consider it given its debt Gamma is zero risk to D / E = 0,25. Then the interest rate is increased by 0.1% in any increase in D / E of 0.05, reaching 6.5% with D / E = 0.5, 7% with D / E = 0.8 and 8 % with D / E = 1,0 ", and to have the rate of 8% with D / E = 1,0, the rate should be 6.9% D / E = 0,70 and D / E = 0.75, 7% D / E = 0,8, and after D / E = 0,85 to D / E = 1,0 to vary the interest rate at 0.25%.

If someone could i help me , i would appriciate it!I can't undestand what i have to do and i need the answer !

Thank you so much and thank you for taking my question in to consideration

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