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Is my answers right? a. CAPM formula: Re = Risk Free Rate RFR + Beta (Rmarket - RFR) Unlevered beta levered Beta / 1+ 1(D/E)

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a. CAPM formula: Re = Risk Free Rate RFR + Beta (Rmarket - RFR) Unlevered beta levered Beta / 1+ 1(D/E) * (1 - t) + (PIE) Levered cost of equity using CAPM = 7% + 1.4*6.5% = 16.1% Unlevered beta = 1.40/(1 30%/70%*70%) = 1.0769 Cost of Equity using CAPM = 7% + 1.0769*(6.5%) = 14.00% 4 Step 1: Find the levered cost of equity at old capital structure. rL = 16.10% Step 2 Find the unlevered cost of equity. ru = 14.00 %

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