Question
A levered firm has an equity beta of 1.0 and debt beta of zero. The market risk premium is 12% and the risk free rate
A levered firm has an equity beta of 1.0 and debt beta of zero. The market risk premium is 12% and the risk free rate is 4%. The balance sheet of the firm consists of $40 million in debt and $60 million in equity. Assume the firms debt is risk-free.
Determine: (Show calculations)
a) The levered cost of equity [5 points]
b) The levered cost of capital of the firm (rwacc) [5 points]
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The Handbook For Investment Committee Members
Authors: Russell L. Olson
1st Edition
0471719781, 978-0471719786
