Determine the market value of the firms debt and equity

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Consider a levered firm with $10 million face value of debt outstanding, maturing in one year. The riskless rate is 6% and the expected rate of return on the market is 12%. The systematic risk of the firms assets is = 1.5, the total risk of these assets is o- , = 1.3, and their market value is $25 million.

a) Determine the market value of the firms debt and equity.

b) Determine the cost of debt and equity capital (assuming a world without taxes).

Reference no: EM131247355

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