Problem:
The following are the beta estimates from Value-Line for several computer firms as well as the D/TA for the firms. Suppose the risk-free rate of return is 8%, the expected market return is 17%, and the tax rate is 35%.
Required:
Question 1: What risk premium must these companies pay as a result of leverage?
Question 2: What proportion of their total equity cost is a result of financing?
Note: Provide support for rationale.