Capital for an average-risk whispering pines investment

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Does any have any advice on how to answer the following questions?

Whispering Pines, Inc. is currently all-equity financed. The expected rate of return on its unlevered shares is 12%. The beta of the market portfolio is 1.0, the risk-free rate of return is 3%, and the market risk premium is 6%. Given this information, answer the questions below.

What is the opportunity cost of capital for an average-risk Whispering Pines investment?

Are the assets of Whispering Pines more, less, or as risky as the market to a diversified investor? Briefly justify your response.

Suppose the company issues debt, repurchases shares, and moves to a 30% debt-to-value ratio (D/V=.3). What will the company's new weighted-average cost of capital be at the new capital structure? The borrowing rate is 7.5% and the tax rate is 35%.

Reference no: EM131173248

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