Company MU is a publicly listed renewable energy company with a credit rating of BBB. Currently, MU has 12 million shares outstanding with share price $10 and an equity beta of 1.8. MU can borrow at a rate of the risk-free rate plus 350 basis points. MU’s marginal tax rate is 35% and its market D/E ratio is 2.2. The company ETA is a private firm in the same industry. The treasurer of ETA picks MU as the comparable firm in order to calculate its cost of capital. ETA’s marginal tax rate is 30%. ETA’s cost of debt is 580 basis points and market D/E ratio is 2.8. The current risk-free rate is 2.5%. The expected market return is 10%.
A. Calculate MU’s WACC. Express answers in percentage points and keep two decimal places .
B Calculate MU’s asset beta. Keep two decimal places