Answer:
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%
