A levered firm has only 2 assets on its balance sheet with the below market...
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Finance
A levered firm has only 2 assets on its balance sheet with the below market values and CAPM betas. The risk free rate is 3% pa and the market risk premium is 5% pa. Assume that the CAPM is correct and all assets are fairly priced.
Selected Company Details
Item
Market value ($m)
Beta
Cash asset
0.5
0
Truck asset
0.5
2
Loan liabilities
0.25
0.1
Equity funding
?
?
Which of the following statements is NOT correct?
Select one:
a. Firms debt-to-assets ratio: 25%.
b. Equity beta = 1.4.
c.Equity required return = 9.5% pa.
d.Required return on debt = 3.5% pa.
e.Required return on assets (or WACC before tax) = 8% pa.
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