Defense Electronics, Inc. (DEI), a large publicly traded firm is the market shar

Question

Defense Electronics, Inc. (DEI), a large publicly traded firm is the market share leader in radar detection systems (RDSs), has asked you to compute the cost of equity for the firm. The cost of equity is equivalent to the required return to shareholders. Using the information provided below, compute the firm’s cost of equity and the total market value of the firm’s equity.

Common Stock: 8,800,000 shares outstanding, selling for $71 per share; the beta is 1.1

Market: 7 percent expected market risk premium; 5 percent risk-free rate

Explanation / Answer

solution :

Total market value = 8800000x 71=624800000

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