Question

The Up and Coming Corporation's common stock has a beta of 1.5. If the risk-free rate is 6 percent and the expected return on the market is 10 percent, what is the company's cost of equity capital

Answer 1

Answer:

12%

Explanation:

Calculation to determine the company's cost of equity capital

Using this formula

Cost of equity = risk free rate + beta*(expected return on market - risk free rate)

Let plug in the formula

Cost of equity = 6% + 1.5*(10% - 6%)

Cost of equity =6%+1.5*(4%)

Cost of equity =6%+6%

Cost of equity = 12%

Therefore the company's cost of equity capital is 12%