3.6k views
4 votes
A firm has a beta of 1.2. the risk premium (rp) equals 9.6% percent and the risk-free rate of return equals 6 percent. the estimated cost of common stock equity is __

a. 15.6 percent
b. 14 percent
c. 6 percent

1 Answer

5 votes

Final answer:

The estimated cost of common stock equity is 17.52%.

Step-by-step explanation:

The estimated cost of common stock equity can be calculated using the formula:

Cost of Common stock equity = Risk-free rate + (Beta x Risk Premium)

Substituting the given values, the estimated cost of common stock equity = 6% + (1.2 x 9.6%) = 6% + 11.52% = 17.52%

Therefore, the estimated cost of common stock equity is 17.52%.

User Gaslan
by
7.8k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories