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Nero Violins has the following capital structure: Security Debt Preferred stock Common stock Beta 0 0.34 1.34 Total Market Va

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Answer #1

total value = 114 + 54 + 313 = 481

Asset beta = weighted average beta

= 0.34 * (54/481) + 1.34 * (313/481)

= 0.910

Discount rate = risk free rate + beta * market risk premium

= 7% + 0.91 * 8%

= 14.28%

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