firm has only 2 assets on its balance sheet with the below market values and...
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Finance
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.
| Item | Market Value | Beta |
| Cash asset | 0.5 | 0 |
| Truck asset | 0.5 | 2 |
| Loan liabilities | 0.25 | 0.1 |
| Equity Funding | ? | ? |
The firm then raises $ 1m more cash in a fairly priced seasoned equity offering (SEO) where the subscription price and pre-announcement share price were both $10 per share. assume that the beta an dyield on the existing loan liabilities are unchanged compared to before. All figures are given to 6 decimal plcaes. which of the following statements is not correct? this event leds to : a. $1m increase in equity to $1.75m and cash to $1.5m b. increase in the total number of shares to 0.175m c. decrease in the asset beta to 0.5 d. decrease in the equity beta to 0.271429 e. decrease in the debt to assets ratio is 12.5%
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