Final answer:
The estimated required cost of equity capital for Kellogg (K) on May 1, 2019, using the CAPM formula, would be approximately 6.694%, assuming a risk-free rate of approximately 2.5% (based on historical data) and a market beta of 0.699.
Step-by-step explanation:
The question involves estimating the required cost of equity capital for Kellogg (K) using the Capital Asset Pricing Model (CAPM). The adjusted market beta for Kellogg is given as 0.699. To compute the cost of equity, we would also need the 10-year Treasury yield as the risk-free rate and assume a market risk premium of 6 percent.
Using the CAPM formula:
Cost of Equity = Risk-Free Rate + (Beta * Market Risk Premium)
The risk-free rate is usually the yield on the 10-year Treasury bond. Since the exact 10-year Treasury yield on May 1, 2019, is not provided, let's assume it was approximately 2.5% based on historical data around that period. The calculation would be as follows:
Cost of Equity = 2.5% + (0.699 * 6%)
Cost of Equity = 2.5% + 4.194%
Cost of Equity = 6.694%
Therefore, the estimated cost of equity capital for Kellogg on May 1, 2019, would be approximately 6.694%.