1. Hawkeye Corp has an equity beta of 1.10 and a debt beta of 0.2. The company faces a 20% marginal tax rate and has a debt-to-equity ratio of 0.5. How much of Hawkeyes equity beta is due to the business, or asset, risk of the company (i.e., asset beta)?

Answers:

1.820

1.125

.700

.843

2. Learn and Earn Company is financed entirely by Common stock that is priced to offer a 15% expected return. If the company repurchases 40% of the stock and substitutes an equal value of debt yielding 6%, what is the expected return on the common stock (r_e) after refinancing (the tax rate is 21%)?

Answers

25.67%

19.74%

22.11%

17.84%

22.11%