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1 In Dec 1995, Boise Cascase's stock had a beta of 0.95. T-Bill rate at that time was 5.8%. T-Bond rate at that time was

1 In Dec 1995, Boise Cascase's stock had a beta of 0.95.
T-Bill rate at that time was 5.8%.
T-Bond rate at that time was 6.4%.
Outstanding Debt of the firm was $ 1.7 billion.
Market Value (MV) of Equity was $ 1.50 billion.
Corporate Marginal Tax rate was 36%.
Historical Risk premium for stocks over T-Bills is 8.5%.
Risk Premium for stocks over T-Bonds is 5.5%.
a) Estimate the expected return on the stock for a short-term investor in the company.
b) Estimate the expected return on the stock for a long-term investor in the company.
c) Estimate the Cost of Equity for the company.
If Boise Cascase also had a debt outstanding of $ 1.7 billion and a
Market Value (MV) of Equity of $ 1.50 billion and
Coporate Marginal Tax Rate of 36%
d) if the current beta is 0.95, estimate the unlevered beta.
e) How much of the Risk in the company can be attributed to business risk and
how much to financial leverage risk?

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