What do investors demand as the expected rate of return

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A comparable firm (with comparable size and in a comparable business) has a Yahoo! Finance-listed equity beta of 2.5 and a debt/asset ratio of 2/3. Assume the debt is risk free.

(a) Estimate the beta for your firm if your projects have similar betas, but your firm will carry a debt/asset ratio of 1/3.

(b) If the risk-free rate is 3% and the equity premium is 2%, then what should you use as your firm's hurdle rate?

Reference no: EM131235366

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