Estimate of the cost of equity capital for amgel

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Reference no: EM131570309

Calculating a Firm’s WACC and Project WACC Amgel Manufacturing Company’s current capital structure is comprised of 30% debt and 70% equity (based on market values). Amgel’s equity beta (based on its current level of debt financing) is 1.20, and its debt beta is 0.29. Also, the risk-free rate of interest is currently 4.5% on long-term government bonds. Amgel’s investment banker advised the firm that, according to her estimates, the market risk premium is 5.25%.

What is your estimate of the cost of equity capital for Amgel (based on the CAPM)?

If Amgel’s marginal tax rate is 35%, what is the firm’s overall weighted average cost of capital (WACC)?

Amgel is considering a major expansion of its current business operations. The firm’s investment banker estimates that Amgel will be able to borrow up to 40% of the needed funds and maintain its current credit rating and borrowing cost. Estimate the WACC for this project.

Reference no: EM131570309

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