ABC's current capital structure is comprised of 60% debt and 40% equity (based on market values)....
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ABC's current capital structure is comprised of 60% debt and 40% equity (based on market values). ABC's equity beta (based on its current level of debt financing) is 1.20, and its debt beta is 0.1. Also, the risk-free rate of interest is currently 4.5% on long-term government bonds. The after-tax cost of debt is 6%. ABC's investment banker advised the firm that, according to her estimates, the market risk premium is 7%. What is your estimate of the cost of equity capital for ABC (based on the CAPM)? A. 9.90% O B. 10.90% O C. 11.90% O D. 12.90% 13 ABC's current capital structure is comprised of 60% debt and 40% equity (based on market values). ABC's equity beta (based on its current level of debt financing) is 1.20, and its debt beta is 0.1. Also, the risk-free rate of interest is currently 4.5% on long-term government bonds. The after-tax cost of debt is 6%. ABC's investment banker advised the firm that, according to her estimates, the market risk premium is 7%. What is your estimate of the cost of equity capital for ABC (based on the CAPM)? A. 9.90% O B. 10.90% O C. 11.90% O D. 12.90% 13
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