(Solution Download) AARON CURRENTLY HAS ZERO DEBT OUTSTANDING. Its earnings before interest and taxes (EBIT) are...


AARON CURRENTLY HAS ZERO DEBT OUTSTANDING. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero-growth company. Aaron?s current cost of equity is 10%, and its tax rate IS 40%. The firm has 20,000 shares of common stock outstanding selling at a price per share of $30. The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 4 percent and the market risk premium is 6 percent. Aaron estimates that if it had no debt its beta would be 1.0. (Its "unlevered beta," bU, equals 1.0.)

 







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