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Rivoli Inc. hired you as a consultant to help estimate its cost of equity. You estimate...

Rivoli Inc. hired you as a consultant to help estimate its cost of equity. You estimate the beta of the company at 1 and the current risk-free rate and the market rate at 2% and 10% respectively. What is the approximate cost of equity for the company?

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Answer #1

cost of equity=risk-free rate +Beta*(market rate- risk-free rate)

=2+1*(10-2)

which is equal to

=10%

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