The previous help did not produce a correct answer. Archimedes Levers is financed by a mixture of debt and equity. You have the following information about its cost of capital: Calculate the rE, rA, E, D, and A. I received the following response for rE &rA, which are not correct: Re=Riskfree Rate+Beta*(Market Rate-Riskfree Rate)=10+1.6*(15-10)=18% Ra=0.35*11+0.65*18=12.91%rE = ? %rD = 11%rA = ? %E = ?D = .2A = ?rf = 10 %rm = 15%D/V = .35 Solution rE = rf + E * (rm - rf) = 10% + 2.4 * (15% - 10%) = 22% D = (rD - rf) / (rm - rf) = (12% - 10%) / (15% - 10%) = 0.4 A = E/V * (E + D * D/E) = 0.45 * (2.4 + 0.4 * 0.45/0.55) = 1.23 rA = rf + A * (rm - rf) = 10% +1.23 * (15% - 10%) = 16.14% Archimedes repurchases debt and issues equity rE = rf + E * (rm - rf) = 10% + 2.4 * (15% - 10%) = 22% D = (rD - rf) / (rm - rf) = (11% - 10%) / (15% - 10%) = 0.2 A = E/V * (E + D * D/E) = 0.65 * (2.4 + 0.2 * 0.35/0.65) = 1.63 rA = rf + A * (rm - rf) = 10% +1.63 * (15% - 10%) = 18.15%.

1. The previous help did not produce a correct answer.
Archimedes Levers is financed by a mixture of debt and equity. You have the following
information about its cost of capital:
Calculate the rE, rA, E, D, and A.
I received the following response for rE &rA, which are not correct:
Re=Riskfree Rate+Beta*(Market Rate-Riskfree Rate)=10+1.6*(15-10)=18%
Ra=0.35*11+0.65*18=12.91%rE = ? %rD = 11%rA = ? %E = ?D = .2A = ?rf = 10 %rm =
15%D/V = .35
Solution
rE = rf + E * (rm - rf)
= 10% + 2.4 * (15% - 10%)
= 22%
D = (rD - rf) / (rm - rf)
= (12% - 10%) / (15% - 10%)
= 0.4
A = E/V * (E + D * D/E)
= 0.45 * (2.4 + 0.4 * 0.45/0.55)
= 1.23
rA = rf + A * (rm - rf)
= 10% +1.23 * (15% - 10%)
= 16.14%
Archimedes repurchases debt and issues equity
rE = rf + E * (rm - rf)
= 10% + 2.4 * (15% - 10%)
= 22%
D = (rD - rf) / (rm - rf)
= (11% - 10%) / (15% - 10%)
= 0.2
A = E/V * (E + D * D/E)
= 0.65 * (2.4 + 0.2 * 0.35/0.65)
= 1.63
rA = rf + A * (rm - rf)
= 10% +1.63 * (15% - 10%)

2. = 18.15%