Market risk premium and the cost of equity

Q1: Calculate market risk premium and the cost of equity of firm by using CAPM method if firm’s beta is 1.25, current yield of treasury bills is 5 %, and expected return on a market portfolio is 12 %. [1.5 Marks]

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undefinedQ2: Calculate Weighted Average Cost of Capital (WACC) if tax rate for a firm is 30 and firm’s capital mix consist of $150 million debt @ 7 % return and $500 million equity requiring a 12% return.

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