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nikdorinn [45]
3 years ago
13

Hampton Corporation has a beta of 1.3 and a marginal tax rate of 34%. The expected return on the market is 11% and the risk-free

interest rate is 4%. Estimate the firm’s cost of internal equity.
Business
1 answer:
vekshin13 years ago
7 0

Answer: 13.1%

Explanation:

Using the Capital Asset Pricing Model, the expected return is;

Expected Return = Risk Free rate + beta(expected return - risk free rate)

= 4% + 1.3( 11% - 4%)

= 4% + 9.1%

Expected Return = 13.1%

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