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1. A firm is trying to estimate its optimal capital structure. Right now, it has a capital structure that consists of 20% debt and 80%

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1. A firm is trying to estimate its optimal capital structure. Right now, it has a capital structure that consists of 20% debt and 80% equity, based on market values (its debt to equity D/S ratio is 0.25 ). The risk-free rate (r RF) is 6% and the market risk premium ( rMrRF ) is 5%. Currently the company's cost of equity, which is based on the CAPM, is 12% and its tax rate is 40%. Find the firm's current leveraged bet using the CAPM

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