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Question 3: The ABC Company has a WACC of 20%. Its cost of debt is 12%,...

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Finance

Question 3:
The ABC Company has a WACC of 20%. Its cost of debt is 12%, whichis equal to the risk-free rate of interest. If ABC’s debt to equityratio is 2, what is the cost of equity capital? ABC’s equity betais 1.5.


A) What are the M&M propositions I, II andIII, please use graphs/charts and words to explain.
B) Based on the M&M proposition II, what isthe beta of the entire firm?

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