Question 17()

1. A firm has a target debt-to-equity ratio of 3. Its cost of equity equals 12 percent, its cost of debt is 9 percent, and the tax rate is 34 percent. What is the WACC?

2. An analyst gathers the following information for Firm A and Firm B. Use the information to compute the industry unlevered beta and the appropriate beta for Firm B to use in the WACC.

Firm A: CAPM beta = 1.6; debt-to-equity ratio = 1.2

Firm B: CAPM beta = 1.0; debt-to-equity ratio = 0.8

The appropriate beta for Firm B is?: