In decision making under ________, there are several possible outcomes for each alternative, and the decision maker knows the pr
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Answer:
WJK's Unlevered Beta = 1.7
Expected rate of return = 13%
Financial leverage = 0.25
Explanation:
given data
debt = $5000
equity = $20,000
interest = 5%
equity beta = 2
market risk premium = 5.5%
risk free rate of return = 2%
marginal tax rate = 30%
solution
we find here Unlevered Beta that is
Unlevered Beta = ...........................1
as that we can say
WJK's Unlevered Beta =
put here value we get
WJK's Unlevered Beta =
WJK's Unlevered Beta =
WJK's Unlevered Beta = 1.7
and
Expected rate of return on equity of GH using CAPM = Risk free rate + Beta of GH × (Market risk premium)
Expected rate of return = 2% + 2 × (5.5%)
Expected rate of return = 13%
and
Financial leverage will be here
Financial leverage =
Financial leverage =
Financial leverage = 0.25