Equity and debt beta-return on assets and asset beta

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Reference no: EM13766821

ChemCo has an 8% debt cost of capital and a 15% equity cost of capital. CemCo’s debt has a market value of $500 million in perpetual bonds with a promised yield of 10%. Currently there are 10 million shares outstanding, each valued at $50. The risk-free rate is 4% and expected return on the market portfolio is 12%.

Assume that the MM assumptions hold (i.e., no taxes, no costs of financial distress) and calculate the following quantities:

a) Equity and Debt Beta

b) Return on Assets and Asset Beta

Reference no: EM13766821

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