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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 Market value ($m) Item Beta Cash asset 0.5 0 Truck asset 0.5 2 Loan liabilities 0.25 0.1 Equity funding ? ? The firm then raises $1m more cash by issuing 2 million more shares in a fairly-priced fully-subscribed 4-for-3 rights issue with a $0.50 per share subscription price and $0.50 pre-announcement market price. Assume that the beta and yield on the existing loan liabilities are unchanged compared to before. All figures are given to 6 decimal places. Which of the following statements is NOT correct? This event led to a: Select one: O a. $1m increase in equity to $1.75m and cash to $1.5m. O b. Increase in the total number of shares to 3.5m. O c. Decrease in the asset beta to 0.5. d. Decrease in the equity beta to 0.5. O e. Asset-to-equity ratio of 1.142857. A levered firm has only 2 assets on its balance sheet with the below market values and CAPM betas. The risk free rate is 3% pa and the market risk premium is 5% pa. Assume that the CAPM is correct and all assets are fairly priced. Selected Company Details Market value ($m) Item Beta Cash asset 0.5 0 Truck asset 0.5 2 Loan liabilities 0.25 0.1 Equity funding ? ? The firm then raises $1m more cash by issuing 2 million more shares in a fairly-priced fully-subscribed 4-for-3 rights issue with a $0.50 per share subscription price and $0.50 pre-announcement market price. Assume that the beta and yield on the existing loan liabilities are unchanged compared to before. All figures are given to 6 decimal places. Which of the following statements is NOT correct? This event led to a: Select one: O a. $1m increase in equity to $1.75m and cash to $1.5m. O b. Increase in the total number of shares to 3.5m. O c. Decrease in the asset beta to 0.5. d. Decrease in the equity beta to 0.5. O e. Asset-to-equity ratio of 1.142857

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