Gibson Flowers-cost of equity
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Given the information provided in the table, what is your estimate of the cost of equity for Gibson Flowers?
Risk-free rate of interest 3.5%
Average equity market return 10.5%
Estimated cost of debt 8.0%
Estimated correlation of Gibson with the market 0.726
Estimated standard deviation of Gibson's returns 35%
Estimated standard deviation of the market's returns 20%
Estimated effective U.S. tax rate 35%
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estimate of the cost of equity for Gibson Flowers?
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Dear Student,
Cost of equity=Rf+(Rm-Rf) Beta
Beta is calculated as ...
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