33.12
12. Assume that a particular company has $400 million in debt and
$1200 million in equity. Assume that the beta of its debt is 0
and the beta of its equity is 1.6. The expected return on the
market is 12% and the risk free rate is 3%.
b. What is the expected return on its assets? (3)
c. What is the expected return on its equity? (3)
d. Why do equity holders demand a different return than the return on the assets? (3)
e. What is the company's weighted average cost of capital? (As always, show your calculations.) (3)