The Bookworm Company is currently financed with $10,000 in debt and $40,000
equity. The market beta of its equity is 1.7. The market beta of its debt is zero since the
company has more than enough cash reserves to pay off its debt completely. The
equity premium is 6%, and the relevant risk-free rate is 4%. What will stockholders in
the company require as a minimum rate of return on their investment? What
minimum rate of return should Bookworm require on projects that it undertakes?

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The Answer of The Bookworm Company is currently financed with $10,000 in debt and $40,000
equity. The market beta of its equity is 1.7. The market beta of its debt is zero since the
company has more than enough cash reserves to pay off its debt completely. The
equity premium is 6%, and the relevant risk-free rate is 4%. What will stockholders in
the company require as a minimum rate of return on their investment? What
minimum rate of return should Bookworm require on projects that it undertakes?

The Bookworm Company Is Currently Financed with $10,000 in Debt