Question
Shares of the Pacific Electric Corporation (PEC) have an estimated beta of 1.10. PEC funds its assets with 50 percent debt at an average after-tax
Shares of the Pacific Electric Corporation (PEC) have an estimated beta of 1.10. PEC funds its assets with 50 percent debt at an average after-tax cost of debt of 6 percent. The excess return on the market portfolio is 5 percent and the risk-free rate is 3 percent.
a. What is PEC's estimated cost of equity according to the CAPM? b. What is PEC's estimated weighted average cost of capital?
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Financial Accounting
Authors: David Spiceland, Wayne M. Thomas, Don Herrmann
5th edition
1259914895, 978-1259914898
