efficient market and inefficient market

  • If you are an active investor with lots of resources (data, analysts, technology, …), would you be better off in an efficient market or an inefficient market (Explain your answer with reference)
  • In the following assume risk free rate is 5% and market risk premium is 6% Assume also marginal tax rate is 40%.

If cost of equity for a company with 25% debt [ meaning D/ E = 25%/75%] is 14%,

what is the cost of equity for same company with 50% debt [meaning D/ E = 50%/ 50%]?

Please provide a clean, clearly written solution to it in excel. The document needs to be self-explanatory for anyone who reads it. 20% of the grade is allocated to clarity of the calculations and steps. If it is confusing, I’d take points off because good communication is of paramount significance.

Write down the formulas you are using clearly before proceeding to use them and plug the numbers in it.

This is a multi-step problem. Make sure every intermediate step is clearly written and calculated and the final result of each step is highlighted before moving to the next step

References :

Applied Corporate Finance, 4th ed.

Damodaran, Aswath

Wiley. 2015

ISBN-13: 978-1118808931

Principles of Corporate Finance, 10th ed.

Brealey, R. A., Myers, S. C., & Allen, F.

McGraw Hill Irwin. (2011).

ISBN: 978-0073530734

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