The common stock of ABC has a beta of 1.20. The risk-free rate is 5 percent, and the market risk premium (Km - Krf) is 6 percent. This year's addition to retained earnings is $3,000,000. The company's capital budget is $4,000,000 and its target capital structure is 50 percent debt and 50 percent equity.
How large of a capital budget can the company have without resorting to the issuance of additional common stock or changing its capital structure?
What is the company's cost of equity capital?© BrainMass Inc. brainmass.com June 3, 2020, 7:30 pm ad1c9bdddf
Target capital structure = 50% debt
Retained earnings for the ...
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