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North Pole Fishing Equipment plc and South Pole Fishing Equipment plc would have identical equity betas of 1.16 if both were all-equity financed. The market value information for each company is shown here:
North Pole South PoleDebt £ 1,430,000 £ 2,620,000Equity £ 2,580,000 £ 1,400,000
The expected return on the market portfolio is 11.7 per cent, and the risk-free rate is 6.1 per cent. Both companies are subject to a corporate tax rate of 27 per cent. Assume the beta of debt is zero.
Requirement 1:
What is the equity beta of each of the two companies? (Round your answers to 2 decimal places (e.g., 32.16).)
Equity betaNorth Pole ?South Pole ?
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CAPM validity as well as possible situations which of the following situations is possible
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