The Akron Company consists of $50 million in perpetual riskless debt and $50 million in equity. The

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The Akron Company consists of $50 million in perpetual riskless debt and $50 million in equity.

The current market value of its assets is $100 million and the beta of its equity return is 1.2.

Assume the risk-free rate is 8 percent, the expected return of the market portfolio is 13 percent per year, and the CAPM is true. Compute the expected return of Akron’s equity and its WACC assuming a 40 percent corporate tax rate.

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Financial Markets And Corporate Strategy

ISBN: 9780077119027

1st Edition

Authors: David Hillier, Mark Grinblatt, Sheridan Titman

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