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    Calculate required rate of return on equity using CAPM

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    At the end of the year 2004 the Office Equipment Industry had free cash flow to equity (FCFE) of $2.50 per share. The following annual growth rates in FCFE are projected
    Year Growth Rate
    2005 10%
    2006 15%
    2007 20%
    2008 25%
    2009 20%
    2010 15%
    2011 10%
    2012 7%

    From year 2013 onward growth in FCFE is expected to remain constant at 5% per year. The industry has a beta of 0.90 and the current industry price is $105. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%

    Calculate the required rate of return on equity according to CAPM.

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    This solution provides calculations for the required rate of return on equity according to CAPM.

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