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please, answer all parts (a , b ,and c ) and step by step and in a very clear way Question 1 You have the
please, answer all parts (a , b ,and c ) and step by step and in a very clear way
Question 1 You have the following information on a company on which to base your calculations and discussion: Cost of equity capital (re) = 18.55% Cost of debt (r, (SD = = 7.85% Expected market premium (rm FrP) = 8.35% Risk-free rate (rp) = 5.95% Inflation = 0% Corporate tax rate (T) = 35% Current long-term and target debt-equity ratio (D:E) = 2:5 a. What are the equity beta (be) and debt beta (b) of the firm described above? [Hint: Assume that the above costs of capital have been generated by an appropriate equilibrium model.] b. What is the weighted average cost of capital (WACC) for this firm at the current debt-equity ratio? C. What would the company's cost of equity capital become if you unlevered the capital structure (i.e. reduced gearing until there is no debt)Step by Step Solution
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