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1) You are estimating the cost of equity capital for a firm and rely on the following comparable firms: Peer Firms Observed Beta Firm A

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1) You are estimating the cost of equity capital for a firm and rely on the following comparable firms: Peer Firms Observed Beta Firm A 2.39 Firm B 2.71 Firm C 1.77 Firm D 1.88 Firm E 1.56 D/E 0.83 1.05 0.25 0.33 Tax Rate 40% 30% 40% 30% 30% 0.00 a) [1 point] You know that the target D/E ratio for your firm is 0.80, and the tax rate is 30%. Further, the risk free rate is 4.00%, and the expected return on the market is 11.00%. What is the estimated cost of equity capital? [When aggregating the data, use the equally-weighted average of the peer firms]. A) 18.43% B) 14.90% C) 21.00%

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