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    Acetate Inc.: What is Acetate debt-equity ratio and what is the firm's overall required return?

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    Acetate Inc, has common stock with a market value of $20 million and debt with a market value of $10 million. The cost of the debt is 14 percent. The current treasury-bill rate is 8 percent, and the expected market premium is 10 percent. The beta on Acetate equity is 0.9.

    a. What is Acetate debt-equity ratio?
    b. What is the firm's overall required return?

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    Solution Preview

    equity = 20 million
    debt = 10 million
    Then debt-equity ratio = 10 / 20 = 0.5

    b)total ...

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