Nodebt Inc. is a firm with all-equity financing. Its equity beta is 0.80. The Treasury bill...

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Nodebt Inc. is a firm with all-equity financing. Its equity beta is 0.80. The Treasury bill...

Nodebt Inc. is a firm with all-equity financing. Its equity beta is 0.80. The Treasury bill rate is 2%, and the market risk premium is expected to be 7%.

a. What is Nodebt’s asset beta? (Round your answer to 2 decimal places.)

b. What is Nodebt’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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Answer 1

Answer #1

a)

Equity beta = $0.80

Since the firm is all equity, No debt is involved and total equity = total assets

Hence, Equity beta = Asset beta = 0.80

Asset Beta = 0.80

b)

WACC = Cost of equity (No debt )

Cost of equity = Rf + beta * (Market risk premium)

Cost of equity = 2% + [0.80 * 7%]

Cost of equity = 7.60%

So, WACC = 7.60%

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Answer 2

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