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%