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Weighted average cost of capital of Firm:
Security
Beta
Expected return
Market
Risk-free
Firm A
Firm B
1.0
0.0
( )
2.0
8.0%
4.0%
10.0%
( )%
1) Figure out the beta for Firm A.
2) Suppose that Firm B has a beta of 2. In addition, Firm B has outstanding long-term bonds. Firm A's Debt-to-Equity ratio (D/E) is 100%. The current yield-to-maturity is 4%. The tax rate is 40%.
i) Figure out the cost of equity for Firm B using CAPM.
ii) Figure out the weighted average cost of capital of Firm B (WACC).
3) What is the relationship between the WACC and capital budgeting? In other words, how does the WACC affect capital budgeting?
type of assets for ppt from t.y.bom com student in commerce department in financial management
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