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7. North Corporation and South Corporation would have identical equity betas of 1.2 if both of them were all-equity financed. The capital structures of the

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7. North Corporation and South Corporation would have identical equity betas of 1.2 if both of them were all-equity financed. The capital structures of the two firms are as follows: The expected return on the market portfolio is 12.75%, and the risk-free rate is 2 North South Debt $1,000,000 $1,500,000 Equity $1,500,000 $1,000,000 4.25%. Both firms are subject to a corporate tax rate of 35%. Assume the debt beta of each of the two firms equals 0. (a) What is the equity beta of each of the two firms? (b) What is the required rate of return on each of the two firm's equity

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