Pharma Inc. has a debt$-$to$-$equity ratio of $3.$

The firm does not hold any cash.

The yield$-$to$-$maturity on its debt is $7\%($with annual

compounding$).$ The corporate tax rate is $21\%.$

The beta of the firm's equity is negative and equal to $-$

$0\mathrm{.}30.$

The risk$-$free rate is $4\%$ and the market risk$-$premium is

$11\%.$

Suppose that the CAPM holds.

a$)$ What fraction of the firm's assets is financed by equity,

and what fraction of the firm's assets is financed by debt?

b$)$ What is the firm's effective cost of debt $($i$.$e$.,$ the cost of

debt after considering taxes$)?$

c$)$ What is the firm's cost of equity implied by the CAPM?

d$)$ What is the firm's weighted average cost of capital

$($WACC$)?$Pharma Inc. has a debt$-$to$-$equity ratio of $3.$

The firm does not hold any cash.

The yield$-$to$-$maturity on its debt is $7\%($with annual compounding$).$ The corporate tax rate is $21\%.$

The beta of the firm$$s equity is negative and equal to $0\mathrm{.}30.$

The risk$-$free rate is $4\%$ and the market risk$-$premium is $11\%.$

Suppose that the CAPM holds.

a$)$ What fraction of the firm$$s assets is financed by equity, and what fraction of the firm$$s assets is financed by debt?

b$)$ What is the firm$$s effective cost of debt $($i$.$e$.,$ the cost of debt after considering taxes$)?$

c$)$ What is the firm$$s cost of equity implied by the CAPM?

d$)$ What is the firm$$s weighted average cost of capital $($WACC$)?$

Group of answer choices

a$)$ WD$=75\%$; WE$=25\%$

b$)4\mathrm{.}33\%$

c$)0\mathrm{.}8\%$

d$)3\mathrm{.}3\%$

a$)$ WD$=25\%$; WE$=75\%$

b$)4\mathrm{.}33\%$

c$)0\mathrm{.}7\%$

d$)4\mathrm{.}3\%$

a$)$ WD$=25\%$; WE$=75\%$

b$)5\mathrm{.}53\%$

c$)0\mathrm{.}8\%$

d$)3\mathrm{.}3\%$

a$)$ WD$=75\%$; WE$=25\%$

b$)5\mathrm{.}53\%$

c$)0\mathrm{.}7\%$

d$)4\mathrm{.}3\%$