Answer:
The cost of capital for electrostatic power generators is closest to 7.75%
Explanation:
In order to calculate the estimate of your cost of capital for electrostatic power generators we would have to make the following calculation:
Step-1, Calculation of the Overall Beta
Market Value of Equity = $40,00,00,000 [160,00,000 Shares x $25 per share]
Market Value of Debt = $22,00,00,000
Total Market Value = $62,00,00,000
Therefore, Beta = [Equity Beta x Weight of Equity] + [Debt Beta x Weight of Debt]
= [1.18 x ($40,00,00,000 / $62,00,00,000)] + [0.08 x ($22,00,00,000 / $62,00,00,000)]
= 0.761290 + 0.028387
= 0.789677
Step-2, Cost of capital
As per CAPM Approach, Cost of capital = Risk-free Rate x (Beta x Market Risk Premium)
= 3% + (0.789677 x 6%)
= 3% + 4.75%
= 7.75%
Therefore, the cost of capital for electrostatic power generators is closest to 7.75%
