Flenderson Group is undertaking a capital budgeting analysis.The rate on 10-year U.S.Treasury bonds is 3.60%, and the return on the S & P 500 index is 11.6%.If the cost of Flenderson Group's common equity is 19.6%, calculate their beta.

Question

Quizplus · Accepted Answer

The cost of equity can be calculated using the Capital Asset Pricing Model (CAPM): Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 19.6% = 3.6% + Beta * (11.6% - 3.6%). Solving for Beta gives Beta = 2.0.

Flenderson Group Is Undertaking a Capital Budgeting Analysis