Suppose that firm A is considering entering a business similar to firm B, a relatively small firm in a single line of business. Firm A is currently financed with 60% debt and 40% equity. Firm B, the...

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Extracted text: Suppose that firm A is considering entering a business similar to firm B, a relatively small firm in a single line of business. Firm A is currently financed with 60% debt and 40% equity. Firm B, the pure-play firm, has a B of 0.95 and is financed with 40% debt and 60% equity. Firm B's marginal tax rate is 30% and firm Á's marginal tax rate is 25%. Assume the riskless rate is 2% and the market return is 8%. (Show work in excel) - What is Firm A's leveraged beta? - What is Firm B's unleveraged beta? - Estimate firm A's cost of equity for the new business using the CAPM. Answer is decimal format. - According to the CAPM, the market risk premium is percent.