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Frictions in capital markets

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G&G Limited has $100 millions in cash and the following capital structure: Security Beta Total Market Value ($ millions) Debt =0(beta βd) 40 Common stock 1.20(beta βe), Equity = 300

Assume the CAPM is correct, the risk free interest rate is 5% and the market risk premium is 6%. There are no frictions in capital markets. What discount rate should G&G set for investments that expand the scale of its operations without changing its business risk?

Reference no: EM133120934

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