Given the following information, what is your best estimate for the ﬁrm's cost of equity on January 2, 2007 the stock sells for $60 on that day?

Question

Quizplus · Accepted Answer

Using the CAPM model:
r = Rf + β*(Rm-Rf)
r = 5% + 1.2*(12% - 5%)
r = 13.0%

Where:
Rf = risk-free rate = 5%
β = beta of the firm = 1.2
Rm = expected market return = 12% (given in the table)

Therefore, the firm's cost of equity is 13.0%.

Given the Following Information, What Is Your Best Estimate for the ﬁRm's