Answered: Vargo, Inc., has a beta estimated by…

Vargo, Inc., has a beta estimated by Value Line of 1.3. The current risk-free rate (long-term) is 3.5 percent and the market risk premium is 6.4 percent. What is the cost of common equity for Vargo?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 15MC: Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds)...

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Question

Vargo, Inc., has a beta estimated by Value Line of 1.3. The current risk-free rate (long-term) is 3.5 percent and the market risk premium is 6.4 percent.

What is the cost of common equity for Vargo?

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

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