Calculate each firms cost of equity

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Reference no: EM13970729

The asset beta for a particular industry is 0.8. Use Equation 9.6 to estimate the equity betas for the following three firms based on their respective debt ratios and tax rates. Then calculate each firm's cost of equity assuming an expected market premium of 8% and a risk-free rate of 4%.

Firm A: 55% debt ratio and 25% tax rate

Firm B: 15% debt ratio and 34% tax rate

Firm C: 70% debt ratio and 30% tax rate

Reference no: EM13970729

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