A company has 1 million outstanding shares with a price of $10 per share. In addition, the company has $5 million of debt that yields 6%. The market value of the company's debt is equal to its par value. The risk-free rate is 2%, the market risk premium is 5%, and the company's beta is 2. The company's tax rate is 50%.

Calculate the market value of the equity and then determine the weights of equity and debt in the capital structure.

Answer rating: 100% (QA)

First lets calculate the market value of the equity The market value of the equity is equal to the ... View the full answer