please answer completely and correctly all questions thanks mayest-0006ckem 1509

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please answer completely and correctly all questions thanks

mayest-0006ckem 150964490 AAA05 C Q Search In financial analysis, it is important to seledt an appropriate discount rate, A project's discount rate must be high to compensate investors for the project's risk. The return that sharehoiders require from the company as a compensation for their investment risk is referred to as the cost of equity Consider this case Hack Wellington Co is a 100% equity-financed company (no debt or preferred stock, hence, its vacc equals its capital budget in the foreseeable future. The company has a beta of 1.80, the risk-free rate is 6.0%, and the market return is 7.8%. cost of common equity. Hack Wellington Co's retained earnings will be sufficient to fund its What is Hack Wellington Co's cost of equity? 11.04% 21.84% 34,58% 9.24%, o O hack welington Co is financed eidusively using equity funding and has a crt of equity of 13.05%. t is considering the following projects for investmient next year Project Required Investment Expected Rate of Return $5,2 $6,375 $4,575 10.60% 1 3.65% 13.10% Each groject has average rk, and Hack wellington Co occepts any project whose expected rate of neturn eeeds its cst of capital, How large should nest year's capital budget be? O $13.500 $9,825

Explanation / Answer

Hack Wellington Co's cost of equity = Risk Free Rate + Beta ( Market Return - Risk Free Rate ) = 6 % + 1.8 x ( 7.8 % - 6% ) = 9.24 %

Capital budget for next year = $ ( 6,375 + 4,575 + 3,675) = $ 14,625.

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