16%
cost of equity= risk free rate+beta*risk premium
where risk premium = market rate - risk free rate.
putting the values in the formula, we get
cost of equity= .09+1.4*.05= .16 or 16%
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Sunil Divakaran
Accountant
DUBAI
United Arab Emirates
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Original Message:
Sent: 11-18-2019 10:11 PM
From: Syed Yousuf Jamal
Subject: cost of equity
TeleNyckel Inc. has a beta of 1.4 and is trying to calculate its cost of equity capital. If the risk-free rate of return is 9% and the market risk premium is 5%, then what is the firm's after-tax cost of equity capital if the firm's marginal tax rate is 30%?
11.20%
12.60%
7.00%
16.00%
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Syed Yousuf Jamal
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