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The risk-free rate of interest is 3% and the required return on the market portfolio or index is 9%. The corporate tax rate is 25%.
The risk-free rate of interest is 3% and the required return on the market portfolio or index is 9%. The corporate tax rate is 25%. King's Landing Swords & Armor has an asset or unlevered Beta of 1.0. The existing corporation is financed with $100 million of debt and $400 million of equity or common stock at current market values. The Beta of the debt is assumed to be zero (riskless). A. Calculate the after-tax WACC, and obviously those items that are essential to calculating the WACC. B. Calculate the firm's required rate of return on equity (not the WACC) if the risk-free rate increases from 3% to 4%
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