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Calculate the required return

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Reference no: EM131787601

Question - Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a levered beta of 1.6 If the risk-free rate is 5.5% and the market risk premium is 6% how much is the additional premium that Ethier's shareholders require to be compensated for financial risk?

Given Data:

Unlevered Beta: 1.00

Levered Beta: 1.60

Risk-Free Rate: 5.50%

Market Risk Premium: 6.00%

Debt 50%

Equity 50%

Step 1: Calculate the Required Return if the company had no debt: (Input data and appropriate formula in the answer cell)

Step 2: Calculate the Required Return if the company has debt: (Input data and appropriate formula in the answer cell)

Step 3: Calculate the extra premium for taking on financial risk: (Include an explanation of how varying degrees of financial risk may command variations in shareholder return expectations)

Reference no: EM131787601

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