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CAPM model, please help with d,e,f Oakhill Partners (OP) is a manufacturer of deep-water diving equipment. The market value of assets of this company is
CAPM model, please help with d,e,f
Oakhill Partners (OP) is a manufacturer of deep-water diving equipment. The market value of assets of this company is $600M, and it has no debt: 100% of the firm is equity-financed. The market beta of assets of OP is equal to A=0.3. The risk-free rate is rf=4%, and the expected excess return on the market portfolio is 9%. Report all your answers with 2 decimal points of precision. (a) What is the expected return on the total assets of OP? rA % (b) What is the market beta of equity of OP? E (c) What is the expected return on the stock of OP? Suppose that OP changes its capital structure: it raises $200M worth of risk-free debt and uses the proceeds to buy back its stock. As a result, OP has $400M of equity outstanding, and $200M of risk-free debt. The properties of its assets remain unchanged. (d) What is the market beta of equity of OP ? E (e) What is the expected return on the stock of OP? rE %x (f) What is the expected return on the debt of OP? rD %Step by Step Solution
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