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4-5. Currently, Hotel California has no debt (i.e., leverage =0 ). The CEO of Hotel California considers increasing leverage (=debt/(debt+equity)) 0.8. Currently, Hotel California's CAPM
4-5. Currently, Hotel California has no debt (i.e., leverage =0 ). The CEO of Hotel California considers increasing leverage (=debt/(debt+equity)) 0.8. Currently, Hotel California's CAPM beta is 1.0. The cost of debt (R_D) will be 10\%, the CFO of Hotel California, is to provide the cost of capital under this proposed capital structure (i.e., 80% leverage). 4. What is the CAPM beta under the proposed capital structure (i.e.,80\% leverage)? A. 1.0 B. 2.0 C. 3.0 D. 4.0 E. 5.0
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