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(c) Suppose a company uses only debt and internal equity to finance its capital budget and uses CAPM to compute its cost of equity.

(c) Suppose a company uses only debt and internal equity to finance its capital budget and uses CAPM to compute its cost of equity. Company estimates that its WACC is 12%. The capital structure is 75% debt and 25% internal equity. Before tax cost of debt is 12.5% and tax rate is 20%. Risk free rate is rRF = 6% and market risk premium = 8%. What is the beta of the company? [10 marks]

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