Consider a firm whose debt has a market value of $40 million and whose stock has a market value of $60 million 3 million outstanding shares of stock, each selling for $20 per share. The firm pays a 15-percent rate of interest on its new debt and has a beta of 1.41. The corporate tax rate is 34 percent. Assume that the SML holds, that the risk premium on the market is 9.5 percent, and that the current Treasury bill rate is 11 percent. What is this firm’s rWACC?
According to your opinion, describe the Efficient Market Hypothesis and the major weakness of the theory.
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