(Solved): OfficeSupport Inc. Is An American Company That Operates In Two Businesses; Computer Services And Of...
OfficeSupport Inc. is an American company that operates in two businesses; computer services and office equipment & services. The company gets approximately 35% of its revenues from Office equipment and services. In this industry, the average beta value is 1,65 and the average debt to equity ratio is 54,88%. The effective tax rate is 15,29%. The average beta value in the computer services business is 1,2, with an average debt to equity ratio of 44,65%. In this business, the average effective tax rate is 8,92%. OfficeSupport Inc. has 300 000 shares outstanding, trading at 27,53 dollars. It has 991 080 dollars in debt (book value) with an average maturity of 5 years, and has an effective tax rate of 20%. The US treasury bond rate is 2%. The S&P 500 is at 3335, paying 5% in dividends. The expected long-term growth in dividends is expected to be 1,8%. OfficeSupport Inc. has an operating income of 320 000 and 59 000 in interest expenses.
Estimate the cost of equity for OfficeSupport Inc. and answer the following questions:
i. What is the firmâ€™s beta value?
ii. What is the firmâ€™s equity risk premium?