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Acme Inc. has a beta coefficient of 0.7 and a required rate of return of 15 percent. The market risk premium is currently 5 percent.

Acme Inc. has a beta coefficient of 0.7 and a required rate of return of 15 percent. The market risk premium is currently 5 percent. We expect the inflation premium to increase 2 percentage points and Acme Inc. to acquire assets which will increase its beta by 50 percent. Please show work..

(a) What was the old risk free rate and the new expected risk free rate?

RF (OLD)

RF(NEW)

(b) What is Oakdale's new beta?

New Beta

(c) What is Oakdale's new required rate of return?

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