A levered firm has only 2 assets on its balance sheet with the below market...
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Finance
A levered firm has only 2 assets on its balance sheet with the below market values and CAPM betas. The risk free rate is 3% pa and the market risk premium is 5% pa. Assume that the CAPM is correct and all assets are fairly priced.
| Selected Company Details | ||
| Item | Market value ($m) | Beta |
| Cash asset | 0.5 | 0 |
| Truck asset | 0.5 | 2 |
| Loan liabilities | 0.25 | 0.1 |
| Equity funding | ? | ? |
Which of the following statements is NOT correct?
Select one:
a. Firms debt-to-assets ratio: 25%.
b. Equity beta = 1.4.
c.Equity required return = 9.5% pa.
d.Required return on debt = 3.5% pa.
e.Required return on assets (or WACC before tax) = 8% pa.
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