1)The capital structure of Gloucester, Inc. includes $9,000,000 of 8% bonds and $6,000,000 of common stock. Additional information: •Gloucester’s beta () = 1.5 •The treasury bond (risk-free) rate = 1.4% •The market risk premium = 6% •The current tax rate = 30%

 a)What does Gloucester’s beta () of 1.5 tell you about the firm?

• What is Gloucester’s required rate of return on equity?
• What is Gloucester’s weighted-average cost of capital (WACC)?
• How can a firm’s WACC be useful in the prospective analysis?
•