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Assuming the CAPM is valid, what is the cost of capital for a company if the...

Assuming the CAPM is valid, what is the cost of capital for a company if the company's capital has a beta of 1.2, the risk-free rate of return is 2%, the expected return in the market is 9 %, and the company's return on debt is 7%?

Solutions

Expert Solution

cost of capital using CAPM = risk free rate + beta*( market return - risk free rate)

=>2%+1.2*(9%-2%)

=>10.4%.

jeff jeffy answered 2 years ago
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