Answer:
increase in cost of equity Ke = 0.14%
Explanation:
given data
current beta = 1.16
market risk premium = 6.8 percent
risk-free rate of return = 2.9 percent
beta rises = 1.18
solution
we get cost of equity when beta β is 1.16
cost of equity Ke = Rf + β ( Rm -Rf ) ................1
cost of equity Ke = 2.9 % + 1.16 ( 6.8% )
cost of equity Ke = 10.788 %
and
cost of equity when beta is 1.18
cost of equity Ke = 2.9 % + 1.18 ( 6.8 % )
cost of equity Ke = 10.924 %
so that
increase in cost of equity Ke = 10.924 % - 10.788 %
so increase in cost of equity Ke = 0.136
increase in cost of equity Ke = 0.14%