Equity market riskpremium is 8%.

Cineplex (CGX) has an equity beta of 0.35

Equity Market Capitalization is 2000 million

Enterprise Value is 2500 million

Annual interest payments are 22 million.

Suppose the debt is risk-free and therefore beta of debt is 0.

1.Compute the risk-free rate (Hint: how much is interest costing CGX?)

2.Use CAPM to compute equity cost of capital

3.Compute the WACC

4.What is the unlevered beta for the Cineplex assets?

5.Use CAPM again to compute the unlevered cost of equity, RU

6.Use MM proposition II to verify the levered cost of equity (match #2)