Question: It is 1 January 1997. Normal America, Inc. (NA) has paid a year-end dividend in each of the last 10 years, as shown by the table below:
a. Calculate NA ' s β with respect to the S&P 500.
b. Suppose that the Treasury bill rate is 5.5% and that the expected return on the market is E() = 13%. If the corporate tax rate = 35%, calculate NA ' s cost of equity using both the classic CAPM and tax-adjusted model.
c. Assume that NA ' s cost of debt is 8%. If the company is financed by 1/3 equity and 2/3 debt, what is its weighted average cost of capital using each of the two CAPM models?