7.(10 pt) Helen is working in CopCo's finance department and she is trying to determine the company's cost of capital. CopCo is financed entirely with equity (i.e. 100% equity, no debt). Helen wants to use the average of industry peers' asset betas as the proxy for CopCo's asset beta. She has identified three industry peers and calculated their equity betas and leverage as shown below. The risk-free rate is 3% and the market risk premium is 5%. Assume debt beta is zero. Be ce Mean Equity beta- 1.60 1.80- 2.00 1.80 D/(D+E) 20% 30% 40% 30% O What are Copco's (a) equity beta (b) cost of equity (c) cost of capital? (8 pt) 1.26 9.3% 10.875% (i) If Copco decides to change to a new capital structure with 20% debt and 80% equity, what would be CorCo's equity beta under the new capital structure? (2 pt) 3 7.(10 pt) Helen is working in CopCo's finance department and she is trying to determine the company's cost of capital. CopCo is financed entirely with equity (i.e. 100% equity, no debt). Helen wants to use the average of industry peers' asset betas as the proxy for CopCo's asset beta. She has identified three industry peers and calculated their equity betas and leverage as shown below. The risk-free rate is 3% and the market risk premium is 5%. Assume debt beta is zero. Be ce Mean Equity beta- 1.60 1.80- 2.00 1.80 D/(D+E) 20% 30% 40% 30% O What are Copco's (a) equity beta (b) cost of equity (c) cost of capital? (8 pt) 1.26 9.3% 10.875% (i) If Copco decides to change to a new capital structure with 20% debt and 80% equity, what would be CorCo's equity beta under the new capital structure? (2 pt) 3