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What is a firm's weighted-average cost of capital if the stock has a beta of 1.1,...

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Finance

What is a firm's weighted-average cost of capital if the stockhas a beta of 1.1, Treasury bills yield 4%, and the marketportfolio offers an expected return of 16%? In addition to equity,the firm finances 70% of its assets with debt that has a yield tomaturity of 10%. The firm is in the 35% marginal tax bracket.

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Solution Calculation of Cost of Equity of the firm As per the Capital Asset Pricing Model CAPM the Cost of equity of a firm is calculated using the following formula Cost of equity RF RM RF Where RF Risk free rate of return Beta    See Answer
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What is a firm's weighted-average cost of capital if the stockhas a beta of 1.1, Treasury bills yield 4%, and the marketportfolio offers an expected return of 16%? In addition to equity,the firm finances 70% of its assets with debt that has a yield tomaturity of 10%. The firm is in the 35% marginal tax bracket.

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