5) EverShine was an unlevered company with beta of 1.25. It decided to borrow money and buyback stock with the proceeds. Cost of equity capital went up by 9% after levering to a debt to value ratio of 0.5. Debt is risk free. Tax rate is zero. Depreciation level is $ 50 Million per year. EBIT is $ 875 Million per year. How much is the market risk premium
Answers: 2
![\beta_l = \beta_u \times [1 + (1 - t) \times \frac{D}{E} ]\\\beta_l = 1.25 \times [1 + (1 - 0) \times 1 ]\\\\\beta_l = 1.25 \times [1 + 1 ]\\\\\beta_l = 2.50](/tpl/images/0561/5384/59bd3.png)
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