The Allegheny Valley Power Company common stock has a beta of 0.80. If the current risk-free rate is 6.5%(Krf)and the expected return on the common stock as a whole is 16%(Km),determine the cost of equity capital (Ke)for the firm (using the CAPM).
The answers to this problem are one of the following:
a. 14.1%
b. 7.6%
c. 6.5%
d. none of the above
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Financial Management Problem: Determining the cost of equity capital for a firm using the CAPM.
The Allegheny Valley Power Company common ...
Solution Summary
This shows how to determine the cost of equity capital (using the CAPM).
... Hence the APV is $1,912,000. The firm's unlevered cost of capital for a cost of equity of 13.8% and a pre-tax cost of debt being 8.5% is determined. ...
... X 0.06 + 15.2% X 0.60 WACC = 11.97% Retained Earnings are $4,500,000 The proportion of equity in total capital structure is 60% The increase in cost of capital...
... Calculate the cost of equity capital using the following methods: a. The constant growth rate dividend capitalization model approach b. The Capital Asset ...
... source: http://news.morningstar.com/classroom2/course.asp?docId=145101&page=4&CN= COM. Impact of Debt to Equity Mix or Debt to Equity Ratio on Cost of Capital: ...
... as: (See Example) Weighted Average Cost of Capital The weighted average cost of capital is calculated by multiplying cost of common equity, cost of preferred ...
... It also illustrates how to compute the after-tax cost of debt, cost of common equity, weighted-average cost of capital, net present value, and maximum price to ...
... The optimal capital structure is 30% debt and 70% equity. The breakpoints in cost of capital are Type of capital Amount($ million) Rate Debt 18 13% Debt >18 ...
