AFM Radio Inc.’s equity has a book value of $25 million and a market value of...

AFM Radio Inc.’s equity has a book value of $25 million and a market value of $75 million. The market value of its debt is equal to the book value, $50 million. The company’s pre-tax cost of debt is 10%. The company’s stock has a beta of 1.5. Assume a corporate tax rate of 30%, a risk-free rate of 5%, and an expected market risk premium of 10%.

(a) What’s the company’s cost of equity, rE?

(b) What’s the company’s pre-tax WACC or rA?

(c) What’s the company’s after-tax WACC?

(d) What’s the beta of the company’s debt, βD?

(e) What’s the company’s asset beta, βA?

Expert Solution

jeff jeffy answered 1 year ago

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