Find the debt ratio of firm and cost of capital

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Reference no: EM132050891

Riskfree rate is 3%, (ERP) is 5% and firm A’s Beta is 1.5, The expected return (cost of equity) of firm A is 6%. Credit rating company Moody’s rated firm A as a BB rated company and the default spread of BB companies is 2% in general. Firm A’s cost of debt is 5%.

Find the firm value if Firm A has debt that worth market value of $1 million and equity that worth market value of $2 million.

Find the debt ratio of firm A.

Find firm A’s cost of capital.

Reference no: EM132050891

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