Positive net leverage in its capital structure

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Reference no: EM131980846

1. A firm has a $700 million market capitalization and $150 million in debt. It also has $70 million in cash and short-term investments on the balance sheet. Its CAPM beta is 1.6, the yield to maturity on its debt is 5%, the corporate tax rate is 35%, and the required return on its equity is 11%. What is this firm’s WACC?

2. If a firm that operates in a single business has positive net leverage in its capital structure, the required return on its equity will be higher than the appropriate discount rate for the firm's typical projects.

Reference no: EM131980846

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