Homework Answers
| To apply the CAPM model, we need to first calculate the risk-free rate of return | ||||
| Market return | 15.40% | |||
| Market risk premium | 8.70% | |||
| Risk free return= | Market return less Market risk premium | |||
| Risk-free return= | 15.40%-8.70% | |||
| Risk-free return= | 6.70% | |||
| Now let's apply the CAPM model to compute the WACC for TASACO | ||||
| Risk-free rate | 6.70% | |||
| Beta | 0.809 | |||
| Market risk premium | 8.70% | |||
| Required return= | Risk free rate + Beta * Market risk premium | |||
| Required return= | 6.70% + 0.809* 8.70% | |||
| Required return= | 13.74% | |||
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