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what is the cost of equity if the risk adjusted discount rate is 16%, the risk free rate is 7% and the beta is 1.8?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 14P

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

-what is the cost of equity if the risk adjusted discount rate is 16%, the risk free rate is 7% and the beta is 1.8?

-what is rhe cost of debt of a bond that has a current price of $875, floatation costs of 10% of the gross price, matures in 10 years and has a coupon rate of 5.5% the firm is in the 35% tax bracket

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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