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Hello Sir,
Please answer me…
On a market value basis, GFV Co is financed 70% by equity and 30% by debt. The company has an after-tax cost
of debt of 6% and an equity beta of 1·2. The risk-free rate of return is 4% and the equity risk premium is 5%.As per official answer its
Cost of equity = 4 + (1·2 x 5) = 4 + 6 = 10%
WACC = (10 x 0·7) + (6 x 0·3) = 7 + 1·8 = 8·8%but I am doing it like
Cost of equity= 4 + 1.2 (5-4)isn’t it right as per formula E(r)= Rf + Beta (E(rm) – Rf)
Please answer me.
Many thanks
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