According to Value Line, Bestway has a beta of 1.15. If 3-month Treasury bills currently yield 7.9% and the market risk premium is estimated to be 8.3%, what is Bestway's cost of equity capital?

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Quizplus · Accepted Answer

The cost of equity capital can be calculated using the Capital Asset Pricing Model (CAPM), which is given by the formula: Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium. Plugging in the given values: Cost of Equity = 7.9% + 1.15 * 8.3% = 7.9% + 9.545% = 17.445%. Rounding this to two decimal places gives 17.45%.

According to Value Line, Bestway Has a Beta of 1