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Q1a) What influences the Cost of Equity of a firm? ExplainQ1b) Explain how the...

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Accounting

Q1a) What influences the Cost of Equity of a firm? Explain

Q1b) Explain how the Capital Asset Pricing Model provides a goodestimate of the Cost of Equity.

Q1c) Explain the formula: Cost of Debt = Loan Interest rate (1 –tax rate)

Q1d) Provide proof that the formula in 1c. is correct in thecase of a firm having an EBIT of $100,000, debt of $600,000 with10% interest, and a tax rate of 40%.
Hint: Calculate for tax payment amounts.

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4.1 Ratings (525 Votes)
1a Cost of equity is determined by calculating the average return on investment that can be expected based on returns generated by the larger market Thus since market risk directly affects cost of equity funding it also directly affects the total cost of capital 1b The Capital Asset Pricing Model is a basis of how    See Answer
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In: AccountingQ1a) What influences the Cost of Equity of a firm? ExplainQ1b) Explain how the Capital...Q1a) What influences the Cost of Equity of a firm? ExplainQ1b) Explain how the Capital Asset Pricing Model provides a goodestimate of the Cost of Equity.Q1c) Explain the formula: Cost of Debt = Loan Interest rate (1 –tax rate)Q1d) Provide proof that the formula in 1c. is correct in thecase of a firm having an EBIT of $100,000, debt of $600,000 with10% interest, and a tax rate of 40%.Hint: Calculate for tax payment amounts.

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