Question

Consider the following information for Vine Inc.: - Beta: 1.39 - Risk-free rate: 7% - Market Risk Premium: 11% What is the cost of the common equity of Vine Inc.? 22.29% 19.21% 32.02%

Answer 1

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%.