Solutions to Chapter 1

b. Since management will maintain the company’s debt at 30% of the present value of the company, the company’s equity is: 0.70 × $795 million = $389.55 million. The rate on Buildwell’s debt is 5 percent. The cost of equity capital is the required rate of return on equity, which can be calculated from the CAPM as follows: 4% + (0.90 ( 8% ... ................
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