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Acetate, Inc., has equity with a market value of $23.5 million and debt with a market value of $11.75 million. The cost of debt is 8 percent per year. Treasury bills that mature in one year yield 4 percent per year, and the expected return on the market portfolio is 10 percent. The beta of Acetate’s equity is 1.2. The firm pays no taxes.
a. What is Acetate’s debt-equity ratio? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)
Debt–equity ratio
b. What is the firm’s weighted average cost of capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
Weighted average cost of capital %
c. What is the cost of capital for an otherwise identical all-equity firm? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)
Cost of capital %
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Juan is considering two independent projects. Project A costs $74,600 and cash flows of $18,700, $46,300, and $12,200 for Years 1 to 3, respectively. Project B costs $70,000 and has cash flows of $10,600, $15,800, and $67,900 for Years 1 to 3, respec..
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