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QQQ Corp. needs you to compute the cost of capital of an investment opportunity. QQQ has compiled the following information f

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Answer #1
Given
AAA BBB CCC
Equity Beta (levered Beta) 1.8 2 1
D/E 0.35 0.4 0.2
Risk-free rate 5%
Market Return 12%
Unlevered beta = levered beta/(1+D/E) 1.333333333 1.428571429 0.833333333
Beta Average (Unlevered) 1.198412698
Cost of equity = (Market Premium * Beta) + Risk free rate
Market premium = Market return - Risk Free Rate 7%
Cost of equity of QQQ Corp 13.39%

Cost of Equity of QQQ Corp = 13.39%

All the calculations are shown on excel

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