Final answer:
The cost of common equity for Vine Inc. is calculated using the CAPM formula to be 22.29%, incorporating the given beta of 1.39, a risk-free rate of 7%, and a market risk premium of 11%.
Step-by-step explanation:
The student has asked about calculating the cost of common equity for Vine Inc., using the given beta, risk-free rate, and market risk premium. The formula used for calculating the cost of equity is the Capital Asset Pricing Model (CAPM), which is:
Cost of Equity = Risk-free rate + (Beta * Market Risk Premium)
In this case:
- Risk-free rate = 7%
- Beta = 1.39
- Market Risk Premium = 11%
Plugging the values into the formula, we get:
Cost of Equity = 7% + (1.39 * 11%) = 22.29%
Therefore, the cost of common equity of Vine Inc. is 22.29%.