Acetate, Inc., has equity with a market value of $22 million and debt with a market value of $11 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 1.05. The firm pays no taxes.
What is the debt-equity ratio?
What is the firms weighted average cost of capital?
What is the cost of capital?