Assume markets are perfect and in equilibrium. Using the following values and the CAPM equation, what is E(r_A ), i.e., the expected return for the following firms assets?

= Notes & perfect market equations: In equilibrium, required returns (based on risk) = expected returns CAPM equation: E(ra) = rf + BA (E(M) rf) WACC = DN E(rd) + EN E(re) E(re) = E(ra) + (E(ra) - E(rd)) D/E (MM Proposition 2 equation) BA = DN BD + EN BE BE = BA + (BA-BD) DIE re = E(re) = Be = 1.5 rf = 4% ro = E(rp) = 7% BD M = E(rm) = 14% ra = E(ra) = Solve for this BA= DN = 0.6 = = = =