Question: Marley's Plumbing Shops has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent and the expected return on the market is 14 percent. Its cost of debt financing is 12 percent. The firm is financed with $120,000,000 of common shares (market value) and $80,000,000 of debt.
A. What is the proportion of debt and equity?
B. What is the CAPM?
C. What is the after-tax weighted average cost of capital for Marley's, if it is subject to a 35 percent marginal tax rate?