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Hello Sgklein and welcome to Just Answer
I just need to review the formula that is in your book. Kindly advise the name of the book you are using: Title, author's name, and edition
The thing is that you are already given the beta, that is why I am confused. Can you post the question exactly as it was given to you please, maybe I am missing something.
I have provided you with the formulae, I am confused, don't know what you mean by "More detail". Please clarify.
Anyway, here is a plain text answer, hope this clarifies it
Beta of an asset = (weight of debt x Beta of Debt) + (weight of equity x Beta of equity)Since this is an all equity firm, the weight of equity = 1 or (100%)Beta of ABC's asset = 1 x 0.8 = 0.8Using CAPM:Cost of equity = Risk Free Rate + Beta (Market Premium)= 4 + (0.8 x 10)= 12%Since ABC is an All Equity firm, WACC = Cost of Equity = 12%
Yes, that is why i wrote "Since this is an all equity firm, the weight of equity = 1 or (100%)", becasue when the firm is an all-equity firm, this means it has no debt in its capital structure. When there is no debt in the capital structure, then the weight of debt = 0, so:
Beta of asset = (0x0) + (1x 0.8) = 0.8
I did not get what you meant by "more detail for the asset beta", but I get you now
Thanks a million for the bonus