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Required rate of return on the biz tech shares

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The total market value of Biz Tech shares is $60 million, and the total market value of its debt is $40 million. The treasurer estimates that the beta of the shares is currently 1.5. The expected risk premium on the market is 8%. The risk- free rate on the Treasury securities is 5%. Biz Tech's debt requires a credit spread of 1% above the risk-free rate. The company's tax rate is 30%.

1. What is the required rate of return on the Biz tech shares? = 0.05+0.08+0.01=0.14 (not sure if this is correct?)

2. Estimate the company's cost of capital. =0.05+1.5(0.14)-0.05 = 0.21 = 21% (not sure if this is correct?)

Reference no: EM133074327

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