The cost of equity Attempts: Keep the Highest: /2 5. The cost of equity Aa Aa In

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The cost of equity

Attempts: Keep the Highest: /2 5. The cost of equity Aa Aa In financial analysis, it is important to select an appropriate discount rate. A project's discount rate must be high to compensate investors for the project's risk. The return that shareholders require from the company as a compensation for their investment risk is referred to as the cost of equity. Consider this case: The Shoe Building Inc. is a 100% equity-financed company (no debt or preferred stock); hence, its WACC equals its cost of common equity. The Shoe Building Inc.'s retained earnings will be sufficient to fund its capital budget in the foreseeable future. The company has a beta of 1:35, the risk-free rate is 4.5%, and the market return is 5.9%. what is The Shoe Building Inc.'s cost of equity? 7.79% 13.87% 0 19.61% 6.39% The Shoe Building Inc. is financed exdus considering the following project ity funding and has a cost of equity of 12.75%.ltism

Explanation / Answer

Answer )

The cost of equity =

risk free rate + Beta * (Return of market - risk free rate)

= 4.5%+1.35*(5.9%-4.5%)

= 6.39%

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