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An analyst has estimated the Capital Asset Pricing Model for Egon LLC, a company that works on alternative energy sources. The analyst have used monthly

image text in transcribedimage text in transcribedimage text in transcribed An analyst has estimated the Capital Asset Pricing Model for Egon LLC, a company that works on alternative energy sources. The analyst have used monthly returns to estimate the following model: (RiRf)=+E(RmRf). The analyst has provided you with the following output from their estimation in Excel: ANOVA Egon LLC is subject to a 30% marginal corporate tax rate. The firm currently has $200 million in debt and $500 million in equity. Egon LLC can issue bonds at an effective rate of 6.7%. The average annual market return (not market excess return) is 12%, and treasury securities pay 4.8% annually. Remember that CAPM states that Ri=Rf+E(RmRf) and the analyst's model was purely used to estimate the equity beta. a) (2 Points) Given its current capital structure, what is Egon LLC's cost of equity capital? (2 Points) What is Egon LLC's weighted average cost of capital? (3 Points) What is Egon LLC's unlevered Beta? (2 Points) Egon LLC is considering a factory that produces solar panels that they would finance through 75% debt and 25% equity. Explain why the firm should not value this project using the WACC from part b. (3 Points) What should be the weighted average cost of capital for Egon LLC to value this new project correctly

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