Question 2 on CAPM The equity (market) value of firm ABC is $150MM. The firm has borrowed $20MM in risk-free debt. The firm has $5MM in cash on hand. The equity's beta is 1.2. The market risk premium is 4 percent. The risk-free rate is 3 percent a. What is the beta of the firm's enterprise value (also known as the market value of the firm's future cash flows)? Use the following formula. (enterprise beta) = (E/(E+D)) * (equity beta) (D/(E+D)) * (debt beta) E stands for equity market value. D stands for "net" debt, which is debt minus cash. (E+D) is enterprise value because it is market equity + debt - cash Hint: I haven't told you the beta of debt and the beta of cash, but is this debt risk-free? Is cash a risk-free asset? If so, what's the beta of risk-free assets? b. Assume the CAPM is correct. What is the expected return to the firm's enterprise value? Question 2 on CAPM The equity (market) value of firm ABC is $150MM. The firm has borrowed $20MM in risk-free debt. The firm has $5MM in cash on hand. The equity's beta is 1.2. The market risk premium is 4 percent. The risk-free rate is 3 percent a. What is the beta of the firm's enterprise value (also known as the market value of the firm's future cash flows)? Use the following formula. (enterprise beta) = (E/(E+D)) * (equity beta) (D/(E+D)) * (debt beta) E stands for equity market value. D stands for "net" debt, which is debt minus cash. (E+D) is enterprise value because it is market equity + debt - cash Hint: I haven't told you the beta of debt and the beta of cash, but is this debt risk-free? Is cash a risk-free asset? If so, what's the beta of risk-free assets? b. Assume the CAPM is correct. What is the expected return to the firm's enterprise value