Ask Question
26 May, 11:34

Nodebt Inc. is a firm with all-equity financing. Its equity beta is. 80. The Treasury bill rate is 4%, and the market risk premium is expected to be 10%. (LO13-1) a. What is Nodebt's asset beta? b. What is Nodebt's WACC?

+5
Answers (1)
  1. 26 May, 12:00
    0
    Asset beta 0.8

    WACC 12%

    Explanation:

    a.

    Asset Beta = [ Equity Beta / (1 + (1 + t) x D/E) ]

    As Firm is with all equity finance there is no debt

    Beta Asset = [ 0.8 / (1 + (1 + t) x 0/100) ]

    Beta Asset = [ 0.8 / (1 + 0) ]

    Beta Asset = 0.8 / 1

    Beta Asset = 0.8

    b.

    To calculate WACC we need Required rate of return, we can calculate it using CAPM

    Required rate of return = Risk free rate + Beta (risk premium)

    Required rate of return = 4% + 0.8 (10%)

    Required rate of return = 4% + 8%

    Required rate of return = 12%

    WACC is same as the required rate of return as there is no debt financing and the weightage of equity is 100%.

    WACC = 12%
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Nodebt Inc. is a firm with all-equity financing. Its equity beta is. 80. The Treasury bill rate is 4%, and the market risk premium is ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers