Calculate the weighted average cost per capital.
2. Assume that Rf = 5 percent and Km = 10.5 percent. Compute Kj for the following betas using the formula listed below.
Kj = Rf + B (Km - Rf)
Rf = Risk free rate of return
B = Beta coefficient ([Kj = a + BKm + e]
Kj = Return on individual common stock of a company
a = Alpha, the intercept on the y-axis
B= Beta, the coefficient
Km - Rf = Premium or excess return of the market versus the risk-free rate.
B (Km - Rf) = Expected rate of return above the risk-free rate for the stock
The weighted average cost of capital is equal to debt proportion * after tax cost of debt + preferred stock proportion * cost of preferred stock + common ...
This solution calculates the weighted cost of capital and the rate of return for a set of specific betas