Question: Consider a company which has equity = 1.5 and debt = 0.4. Suppose that the risk-free rate of interest is 6%, the expected

Consider a company which has β_equity = 1.5 and β_debt = 0.4. Suppose that the risk-free rate of interest is 6%, the expected return on the market E(r_M) = 15%, and that the corporate tax rate is 40%. If the company has 40% equity and 60% debt in its capital structure, calculate its weighted average cost of capital using both the classic CAPM and the tax adjusted CAPM.

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