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Caterpillar currently has an equity beta of 1.5. Their market cap is $70 billion, and they have $30 billion in debt. Suppose that the yield
Caterpillar currently has an equity beta of 1.5. Their market cap is $70 billion, and they have $30 billion in debt. Suppose that the yield to maturity on their bonds is 3%. Further assume that the risk-free rate is 2% and the market risk premium is 6%. Solve for the required return on assets using both the asset beta approach and by averaging the cost of debt and cost of equity
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