Your estimate of the market risk premium is 6%. The risk-free rate of return is 5% and Virgin Australia has a beta of 1.2. What is Virgin's cost of equity capital?

Question

Quizplus · Accepted Answer

Virgin Australia's cost of equity capital can be calculated using the following formula:

Cost of Equity Capital = Risk-Free Rate + Beta * Market Risk Premium

Plugging in the given values, we get:

Cost of Equity Capital = 5% + 1.2 * 6%

Cost of Equity Capital = 12.2%

Therefore, the answer is B) 12.2%.

Your Estimate of the Market Risk Premium Is 6