Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Use the general market information below to fill in the missing questions that follow: The risk - free rate is 3 % . The tax

Use the general market information below to fill in the missing questions that follow:
The risk-free rate is 3%.
The tax-adjusted market risk premium (TAMRP) is 7%.
The corporate and investor tax rates are both assumed to be 28%.
(a) ABC Ltd. is an energy company with an equity beta of 1.5. According to the simplified Brennan-Lally CAPM, the cost of equity for ABC Ltd. is
_______%.
Note: Please provide your answer in percent with two decimal points in the format of xx.xx (for example, if the answer is 12.345%, type in 12.35).
(b) DEF Ltd is another energy company. Suppose that the asset beta for companies in the energy sector is 0.76. Assume the debt beta is zero. If DEF's market value of equity is $800m and its market value of debt is $200m, then DEF's equity beta is
_____.
Note: Please provide your answer with two decimal points in the format of xx.xx (for example, if the answer is 12.345, type in 12.35).
(c) GHI Ltd also operates in the energy sector. GHI has a cost of equity of 11% and the market interest rate on its debt is 6%. It has debt with a market value of $400m and equity with a market value of $600m. GHI's weighted average cost of capital (WACC) is
_____%.
Note: Please provide your answer in percent with two decimal points in the format of xx.xx (for example, if the answer is 12.345%, type in 12.35).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investments

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

9th Edition

73530700, 978-0073530703

More Books

Students also viewed these Finance questions

Question

Which of her manic behaviors became a concern to her parents?

Answered: 1 week ago