Nodebt Inc. is a firm with all-equity financing. Its equity beta is .80. The Treasury bill rate is 4%, and the market risk premium is expected to be 10%. (LO13-1) a. What is Nodebt’s asset beta? b. What is Nodebt’s WACC?

Asset beta 0.8

WACC  12%

Explanation:

a.

Asset Beta = [ Equity Beta / ( 1 + ( 1 + t ) x D/E ) ]

As Firm is with all equity finance there is no debt

Beta Asset = [ 0.8 / ( 1 + ( 1 + t ) x 0/100 ) ]

Beta Asset = [ 0.8 / ( 1 + 0) ]

Beta Asset = 0.8 / 1

Beta Asset = 0.8

b.

To calculate WACC we need Required rate of return, we can calculate it using CAPM

Required rate of return = Risk free rate + Beta ( risk premium )

Required rate of return = 4% + 0.8 ( 10% )

Required rate of return = 4% + 8%

Required rate of return = 12%

WACC is same as the required rate of return as there is no debt financing and the weightage of equity is 100%.

WACC = 12%

answer: tell me how

explanation:

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