The Ramirez Corporation has a current stock market price of $104, and expects to pay a...
The Ramirez Corporation has a current stock market price of $104, and expects to pay a dividend of $3.75 per share at the end of the current fiscal year. The risk-free rate for this firm is 5.5%, the firm’s beta is 1.25, and the expected return on the market is 15%. Find the cost of equity for this firm using the CAPM approach. a. 9.37% b. 42.0% c. 1.25% d. 17.38%
Homework Answers
Answer:
Correct answer is:
d. 17.38%
Explanation:
As per CAPM:
Cost of equity = Risk free rate + Beta * (Market rate of return - Risk free rate)
= 5.5% + 1.25 * (15% - 5.5%)
= 17.375% or 17.38%
As such option d is correct and other options a, b and c are incorrect.
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