Question

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%

Answer 1

Answer:

Based on the CAPM approach, the cost of common from reinvested earnings is e. 10.93%

Explanation:

Hi, first, let´s introduce the formula for the CAPM approach.

$Cost(e)=rf+beta*RPM$

Therefore:

$Cost(e)=0.041+1.30*0.0525=0.1093$

So, the cost od common from reinvested earnings is 10.93%, which would be option "e".

Best of luck.