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Marley's Plumbing Shops has found that its common equity capitalshares have a beta equal to 1.5 while the risk-free return is 8percent and the expected return on the market is 14 percent. Itscost of debt financing is 12 percent. The firm is financed with$120,000,000 of common shares (market value) and $80,000,000 ofdebt.What is the proportion of debt and equity?What is the CAPM?What is the after-tax weighted average cost of capital forMarley's, if it is subject to a 35 percent marginal tax rate?
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