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A B % Debt D/E D Levered Equity Beta 0.85 1.26 Average E Unlevered Asset Beta 0.7057 1.0080 0.3528 45.0% 50.0% 0.8182 1.0000 5 6

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A B % Debt D/E D Levered Equity Beta 0.85 1.26 Average E Unlevered Asset Beta 0.7057 1.0080 0.3528 45.0% 50.0% 0.8182 1.0000 5 6 COMP A 7 COMP B 8 9 10 11 12 13 14 25% Tax rate = Target D/E Assume Beta of debt = 0 ABC asset beta ABC equity beta 15 16 17 18 19 20 3.00% 6.10% Long-bond = MRP = R(equity) = R(debt) = 6.00% A B % Debt D/E D Levered Equity Beta 0.85 1.26 Average E Unlevered Asset Beta 0.7057 1.0080 0.3528 45.0% 50.0% 0.8182 1.0000 5 6 COMP A 7 COMP B 8 9 10 11 12 13 14 25% Tax rate = Target D/E Assume Beta of debt = 0 ABC asset beta ABC equity beta 15 16 17 18 19 20 3.00% 6.10% Long-bond = MRP = R(equity) = R(debt) = 6.00%

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