Problemthe common stock of a company has a beta of 090 the, Ask an Expert

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Problem:

The common stock of a company has a beta of 0.90. The Treasury bill rate (rrf) is 4 percent, and the market risk premium is estimated to be 8 percent (RPm = 8%). This firm's capital structure is 30 percent debt, paying a 5 percent interest rate (rd = 5%), and 70 percent equity.

Required:

Question 1: What is this firm's cost of equity capital?

Question 2: What is the weighted average cost of capital (WACC)? Assume the company has a 40 percent marginal tax rate.

Note: Please show how to work it out.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170332

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