If a firm has a market beta of 0.9,is subject to an income tax rate of 35 percent,has a risk-free rate of 6 percent,a market risk premium of 7 percent,and has a market value of debt to market value of equity ratio of 60 percent,what does the market expect the firm to generate in terms of equity returns using CAPM?
A) 6%
B) 7%
C) 12.3%
D) 13%

Question

Quizplus · Accepted Answer

12.3% = [.06 + (0.9 x .07)]

If a Firm Has a Market Beta of 0