What is required rate of return on equity for each company

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North Pole Fishing Equipment and South Pole Fishing Equipment would have identical equity betas of 1.25 if both were all equity financed. The market value information for each firm is shown below: o North Pole = Debt of $2,900,000 and Equity of $3,800,000 o South Pole = Debt of $3,800,000 and Equity of $2,900,000 o The expected return on the market portfolio is 12.40% and the risk-free rate is 5.30%. Both companies are subject to a corporate tax rate of 35%. Assume the beta of debt is ‘0’. a) What is the equity beta of each of the two companies? b) What is the required rate of return on equity for each company? Please show all calculations

Reference no: EM131300205

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