Cost of common equity question

Business & Finance
Tutor: None Selected Time limit: 1 Day

Paul Sharp is CFO of Fast Rocket Inc. He tries to determine the cost of equity financing for his company. The stock has a beta of 1.85. Paul estimated that the market return is 7.94%. The current rate for 10-year Treasury Bonds is 3.82%. Calculate cost of common equity financing using CAPM – SML formula.

Round the answers to two decimal places in percentage form.

Sep 28th, 2015

Thank you for the opportunity to help you with your question!

This is solved using CAPM model.

Expected return= Rf + (Rm- Rf) *beta

=3.82%+ (7.94% - 3.82%)*1.85 = 11.44%

Please let me know if you need any clarification. I'm always happy to answer your questions.
Sep 28th, 2015

Thank you!

Sep 28th, 2015

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