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Cost of equity capital

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

Solution Preview

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).

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