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WACC

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ClearDebt Inc., is a firm with all-equity financing. Its equity beta is .80. The Treasury bill rate is 4 percent, and the market risk premium is expected to be 10 percent. What is ClearDebt's asset beta? What is ClearDebt's weighted-average cost of capital? The firm is exempt from paying taxes.

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Solution Summary

The solution explains how to calculate the weighted-average cost of capital.

Solution Preview

Asset beta = E/V X equity beta
where
E = Total Equity
V = Total capital
Since ClearDebt is all equity firm, there is no debt and so total capital = total equity and so ...

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