The Allegheny Valley Power Company common stock has a beta of 0.80. Assume the current risk-free rate is 6.5% and the expected return on the stock market as a whole is 16%, determine the cost of equity capital for the firm (using the CAPM).

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The cost of equity capital can be calculated using the Capital Asset Pricing Model (CAPM) formula: Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 6.5% + 0.80 * (16% - 6.5%) = 6.5% + 0.80 * 9.5% = 6.5% + 7.6% = 14.1%.

The Allegheny Valley Power Company Common Stock Has a Beta