Estimate the firms weighted-average-cost-of-capital

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1) You are considering the purchase of a stock with a Beta of 0.85. The current yield on T-Bondsis 1.35%, and you expect the long-term excess returns on the Market Portfolio to be 7.50%. Use the Capital Asset Pricing Model (CAPM) to estimate the long-term return on this stock.

2) A firm has a debt-to-asset ratio of 35% (based on the market value of assets). The firm'sbondholders require a return of 3.25%, and the equity holders require a return of 8.50%. Thefirm's marginal tax-rate is 34%. Estimate the firm's Weighted-Average-Cost-of-Capital(WACC)

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Reference no: EM131884891

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