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Cost of Reinvested Capital

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9-11
Cost of reinvested profits and new common shares - CAPM
Using the data for each firm shown in the following table, calculate the cost of reinvested profits and new common shares using the CAPM.

P0 Rf Market Total of
Firm Beta Current Risk-free Risk discount &
Market Price rate Premium floatation costs
1 0.84 $15.40 3.20% 4.80% $1.12
2 1.46 $9.65 4.10% 6.10% $0.78
3 1.12 $32.10 6.60% 5.60% $2.94
4 0.61 $25.00 2.80% 5.80% $2.41

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Solution Summary

The solution shows the computation for cost of reinvested capital using CAPM approach.

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P0 Rf Market Km Total of No
Firm Beta Current Risk-free Risk Market discount &
Market Price rate Premium Return floatation costs No
1 0.84 ...

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