Assume a firm can be financed with $5000 of debt that has a market beta of 0.3 and $7000 of equity that has a beta of 1.1. If the risk-free rate is 3% and the equity premium is 5%, what is the cost of capital of the overall firm? a.11.2% b. 9.9% c. 6.8% d. 8.0%
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- Assume a firm is financed with $7500 debt and $2500 equity. The beta of the equity is 1.1. The risk-free rate is 3%, and the equity premium is 6%. If the overall cost of capital of the firm is 8%, what is the beta of the firmʹs debt? Group of answer choices 0.28 0.14 0.92 0.74Assume a firm is financed with $1000 debt that has a market beta of 0.4 and $3000 equity. The risk -free rate is 3%, the equity premium is 6%, and the firmʹs overall cost of capital is 11%. What is the expected return on the firmʹs debt? Group of answer choices 5.4% 4.5% 6.0% 3.0%Assume perfect capital markets. A firm has a market value of $30, 000 and debt of $7, 500 horrowed at 7%. The return on equity is 18%. What is the return on equity if the firm was unlevered? (Hint: Think about WACC, WACCL = WACCU)
- A firm is financed with debt that has a market beta of 0.3 and equity that has a market beta of 1.2. The risk-free rate is 3%, and the equity premium is 5%. The overall cost of capital for the firm is 8%. What is the firmʹs debt-equity ratio? Group of answer choices 28.6% 25.0% 25.2% 74.8%What is the company’s cost of capital? 1. CAPM = rrf + (rm – rrf)B = required rate of return on equityr rf = risk-free rate of return = 10-year Treasury rate = 3% S&P market premium (in parenthesis) is the extra return to cover risk offered in the stock market = 5%. B = Beta of company = 1.2 2. WACC = wdrd(1-t) + were = weighted average cost of capitalWeights of debt and equity: Given debt ratio, that is, debt to total assets = 28%. Cost of debt is bond rating at high end of A average = 6%. Tax rate given 40%.Assuming the CAPM or one-factor model holds, what is the cost of equity for a firm if the firm's equity has a beta of 1.2, the risk-free rate of return is 4%, the expected return on the market is 10%, and the return to the company's debt is 7%? A. 11.2% B. 11.4% C. 12.8% D. 12.9% E. None of these.
- 1. Using the Capital Asset Pricing Model (CAPM), what's this company's cost of common equity? ·Expected market return = 10% Risk-free rate = 4% Beta = 1.3Suppose that AXA currently has no debt and has an equity cost of capital of 12%. AXA is considering borrowing funds at a cost of 6% and using these funds to repurchase existing shares of stock. Assume perfect capital markets. If AXA borrows until it achieved a debt‐to‐equity ratio of 1/2, then AXAʹs levered cost of equity would be closest to: A. 18.0% B. 6.0% C. 15.0% D. 10.0%An all-equity firm is considering the following projects: Project Beta IRR W .67 9.5 % X .74 10.6 Y 1.37 14.1 Z 1.48 17.1 The T-bill rate is 5.1 percent, and the expected return on the market is 12.1 percent. a. Which projects have a higher/lower expected return than the firm’s 12.1 percent cost of capital?
- If a firm's beta is 1.1, the risk-free rate is 6%, and the expected return on the market is 14%, what will be the firm's cost of equity using the CAPM approach? Select one: a. 14.80% b. 21.40% c. 8.80% d. 15.40% e. 22.00%Calculate the company's asset beta, if the firm's equity beta is 1.6, the debt equity ratio is 0.6 and the marginal tax rate is 30%. Select a O O 1.1268 2.1268 O 1.2618 2.216You are analyzing the cost of capital for a firm that is financed with 65 percent equity and 35 percent debt.The cost of debt capital is 8 percent , while the cost of equity capital is 20 percent for the firm . What is the Coverall cost of capital for the firm ? Select one a . None of these b . 12.2 % C. 15.8 % d . 20.2 %