A firm has estimated its weighted average cost of capital to be 9% based on the fact that its after cost of debt financing is 7% and its cost of equity is 12%. What are the firm's capital structure weights (, the proportions of financing that came from debt | (W_{D}) and equity (WE) assuming the firm uses only debt and equity to finance its projects)? 

Second question: Suppose an investor has $50000 to invest in a portfolio of risk asset and the market index/portfolio. The expected return on the market portfolio is 13.5 percent with a standard deviation of 18 percent. The risk free rate return is 4.25 percent. How much of the funds should be in the risk free asset if the portfolio has an expected return of 10 percent?

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First question To calculate the firms capital structure weights we need to find the proportions of f... View the full answer