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1. a) The following is adapted from Financial Management for Executives (2nd ed.): Use a capital...

1. a) The following is adapted from Financial Management for Executives (2nd ed.): Use a capital asset pricing model (CAPM) to calculate the expected return on a stock that has a beta of 2.5 if the risk-free rate is 3 percent and the market portfolio is expected to pay 11 percent.

b) The following is adapted from Financial Management for Executives (2nd ed.): Acme Inc. is financed one third with debt and two thirds with equity. Acme’s expected return on equity is 12 percent and its expected return on debt is 6 percent. Acme has a corporate tax rate of 33 percent. Calculate Acme’s weighted average cost of capital (WACC)

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