Shares of the Pacific Electric Company (PEC) have an estimated Beta of 1.10. PEC funds its assets with 50 percent debt at an average after-tax cost of debt of 6 percent. The excess return of the market portfolio is 5 percent and the risk-free rate is 3 percent. Question A. what is PEC's estimated cost of equity according to the CAPM? Question B. what is PEC's estimated weighted average cost of capital?

Shares of the Pacific Electric Company (PEC) have an estimated Beta of 1.10. PEC funds its assets with 50 percent debt at an average after-tax cost of debt of 6 percent. The excess return of the market portfolio is 5 percent and the risk-free rate is 3 percent. Question A. what is PEC's estimated cost of equity according to the CAPM? Question B. what is PEC's estimated weighted average cost of capital?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 1hM

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