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Big Dawg Incorporated is trying to estimate its cost of equity capital. The firm believes its...

Big Dawg Incorporated is trying to estimate its cost of equity capital. The firm believes its beta is 1.11. The current risk free rate in the economy is 1.84%, while the market portfolio risk premium is 6.00%. What is an estimate for the equity cost of capital?

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Answer #1

Answer Risk Free Rate = 1.84%

Beta = 1.11

  Market Risk Premium = 6%

Cost Of Equity ( As per CAPM)

Ke = Rf + Beta ( Erm - Rf)

Ke = 1.84% + 1.11(6%)

Ke = 8.50%

Hence the Cost of Equity Capital = 8.50%

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