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LUCKY_DIMON
2 months ago
10

You have been hired as a consultant by Feludi Inc.'s CFO, who wants you to help her estimate the cost of capital. You have been

provided with the following data: rRF = 4.10%; RPM = 5.25%; and b = 1.30. Based on the CAPM approach, what is the cost of common from reinvested earnings?
a. 9.67%
b. 9.97%
c. 10.28%
d. 10.60%
e. 10.93%
Business
1 answer:
Scilla [3.8K]2 months ago
8 0

Answer:

The equity cost will be 10.93 %

Thus, option (E) is correct

Explanation:

The given risk-free return is r_{rf}=4.10%=0.0410

Market risk premium RPM = 5.25 % = 0.0525

We will calculate the cost of equity from reinvested earnings, denoting the cost of equity\beta =1.30

Cost of equity is calculated as

Cost of equity = risk-free rate +

\beta \times market\ risk\ premium= 0.0410 + 1.30 x 0.0525 = 0.10925 = 10.93 %

So option (E) is the correct choice

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J. Morgan and M. Halsted are partners who share income and loss in a 3:1 ratio. After several unprofitable periods, the two part
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cash   110,000 debit

  land                   100,000 credit

  gain from disposal  10,000 credit

--to document the land sale--

accounts payable 80,000 debit

               cash               80,000 credit

--to record the settlement of debts--

gain from disposal 10,000 debit

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