Problemthe following are the beta estimates from value-line, Ask an Expert

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Problem:

The following are the beta estimates from Value-Line for several computer firms as well as the D/TA for the firms. Suppose the risk-free rate of return is 8%, the expected market return is 17%, and the tax rate is 35%.

Required:

Question 1: What risk premium must these companies pay as a result of leverage?

Question 2: What proportion of their total equity cost is a result of financing?

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91166911

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