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The total market value of the common stock of the acme company is $10 million,...

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Accounting

The total market value of the common stock of the acme company is $10 million, and the total value of its debt is $9 million. The treasurer estimates that the beta of the stock is currently 0.9 and that the expected risk premium on the market is 7%. The treasury bill rate is 3%. The company tax rate is 20%. Assume for simplicity that Acme debt is risk free. Estimate the company cost of capital.

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