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Finding asset beta and WACC for a all-equity firm

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ABC Corp. is a firm with all-equity financing. Its equity beta is .80. The Treasury bill rate is 4% and the market risk premium is expected to be 10%.

a. What is ABC's asset (equity) beta?

b. What is its weighted average cost of capital? The firm is exempt from paying taxes.

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Solution Summary

Solution describes the steps for calculating asset beta for all-equity financed firm. It also calculates WACC for such firm.

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Solution:

Firm's equity beta=0.80

Firms is all equity financed,
Debt weight=0
Equity weight=1

it's ...

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  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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