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Brien Inc. has the following data: RRF = 3.65%; RPM = 7.40%; and beta = 1.15. What is the firm's cost of equity from retained earnings based on the CAPM?

Brien Inc. has the following data: RRF = 3.65%; RPM = 7.40%; and beta = 1.15. What is the firm's cost of equity from retained earnings based on the CAPM?

a. 12.16%

b. 14.24%

c. 9.20%

d. 10.74%

Solutions

Expert Solution

The option (a) is right option.

 

Explanation:

As per CAPM

cost of equity = risk free rate + beta*market risk premium

risk free rate = RRF = 3.65%

market risk premium = RPM = 7.4%

beta = 1.15

         = 3.65 + 1.15*7.4

         = 12.16%

 

Hence, the (a) is correct option.

Hence, (a) is correct.

Nabeel answered 1 year ago
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