Cost of Capital: Acetate Inc. has equity with a market value of $35 million and debt with a market value of $14 million. Treasury bills that mature in one year yield 6 percent per year and the expected return on the market portfolio is 13 percent. The beta of Acetate’s equity is 1.15. The firm pays not taxes.a. What is Acetates’ debt-equity ratio?b. What is the firm’s weighted average cost of capital?c. What is the cost of capital for an otherwise identical all-equity firm?
