Question: Consider a levered firm with $10 million face value of debt outstanding maturing in one year. The riskless rate is 6%, and the expected rate

Consider a levered firm with $10 million face value of debt outstanding maturing in one year. The riskless rate is 6%, and the expected rate of return on the market is 12%. The systematic risk of the firm's assets is (V = 1.5, the total risk of these assets is (v= 1.3, and their market value is $25 million.
(a) Determine the market value of the firm's debt and equity.
(b) Determine the cost of debt and equity capital (assuming a world without taxes)?

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