An analyst has collected data about Gaines Consulting and a world market index. The index implies an equity risk premium of 7 percent, and Gaines has a beta of 1.5 with respect to the index. When the residuals from the beta regression are collected and included in the regression model as an additional factor, a segmented market risk premium of 16 percent is calculated and the segmented beta with respect to this factor is 0.8. The appropriate risk-free return is 4 percent. If Gaines is estimating the cost of common equity for subsidiaries in developing, segmented foreign markets, what is the appropriate cost of common equity?

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The Answer of An analyst has collected data about Gaines Consulting and a world market index. The index implies an equity risk premium of 7 percent, and Gaines has a beta of 1.5 with respect to the index. When the residuals from the beta regression are collected and included in the regression model as an additional factor, a segmented market risk premium of 16 percent is calculated and the segmented beta with respect to this factor is 0.8. The appropriate risk-free return is 4 percent. If Gaines is estimating the cost of common equity for subsidiaries in developing, segmented foreign markets, what is the appropriate cost of common equity?

An Analyst Has Collected Data About Gaines Consulting and a World