A firm has an unlevered pr asset beta of 1.0. This firm is currently financed with $100 million of debt and $400 million of equity (current market values). The book value of the common stock is $250 million. The firms corporate tax rate is 25%. The required return on the market index portfolio is 9% and the risk free rate of interest is 3%. The beta of the firms debt is assumed to be 0. Calculate the after-tax WACC and obviously those items that are essetial to calculating WACC. Calculate the firms required rate of return on equity(not WACC) if the risk free rate increases from 3% to 4%, but the market risk premium remains the same as before.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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A firm has an unlevered pr asset beta of 1.0. This firm is currently financed with $100 million of debt and $400 million of equity (current market values). The book value of the common stock is $250 million. The firms corporate tax rate is 25%. The required return on the market index portfolio is 9% and the risk free rate of interest is 3%. The beta of the firms debt is assumed to be 0. Calculate the after-tax WACC and obviously those items that are essetial to calculating WACC. Calculate the firms required rate of return on equity(not WACC) if the risk free rate increases from 3% to 4%, but the market risk premium remains the same as before.

 

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