Your estimate of the market risk premium is 8%. The risk-free rate of return is 2.5% and Virgin Australia has a beta of 1.5. What is Virgin's cost of equity capital?

Name: Your estimate of the market risk premium is 8%. The risk-free rate of return is 2.5% and Virgin Australia has a beta of 1.5. What is Virgin's cost of equity capital?
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Question

Quizplus · Accepted Answer

Virgin's Cost of Equity Capital = Risk-Free Rate + Beta * Market Risk Premium
= 2.5% + 1.5 * 8%
= 2.5% + 12%
= 14.5%

Your Estimate of the Market Risk Premium Is 8