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A firm is financed with debt that has a market beta of 0.3 and equity that...

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Finance

A firm is financed with debt that has a market beta of 0.3 andequity that has a market beta of 1.2. The risk-free rate is 3%, andthe equity premium is 5%. The overall cost of capital for the firmis 8%. What is the firm?s debt-equity ratio?

a) 28.6%

b) 25.0%

c) 74.8%

d) 25.2%

Answer & Explanation Solved by verified expert
4.4 Ratings (822 Votes)
Risk free rate 3 Equity premium 5 Debt beta 03 Equity beta 12 Required rate of return for equity shall be Risk free rate of return Beta Equity premium 3 12 5 9 Other information about debt is    See Answer
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A firm is financed with debt that has a market beta of 0.3 andequity that has a market beta of 1.2. The risk-free rate is 3%, andthe equity premium is 5%. The overall cost of capital for the firmis 8%. What is the firm?s debt-equity ratio?a) 28.6%b) 25.0%c) 74.8%d) 25.2%

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