5. The cost of equity Aa Aa In financial analysis, it is important to select an appropriate discount rate. A project's discount rate must be high to compensate investors for the project's risk. The return that shareholders require from the company as a compensation for their investment risk is referred to as the cost of equity Consider this case: Scorecard Corp. is a 100% equity-financed company (no debt or preferred stock): hence, its wACC equals its cost of common equity. Scorecard Corp.'s retained earnings will be sufficient to fund its capital budget in the foreseeable future. The company has a beta of 1.20, the risk-free rate is 4.0%, and the market return is 5.2% What is Scorecard Corp.'s cost of equity? 0 5.44% 6.64% 11.44% 15.54% Scorecard Corp. is financed exclusively using equity funding and has a cost of equity of 13.05%. It is considering the following projects for investment next year: Project Required Investment Expected Rate of Return $19,825 $22,375 $11,275 $15,675 14.60% 13.10% 12.10% 13.65% Each project has average risk, and Scorecard Corp. accepts any project whose expected rate of return exceeds its cost of capital. How large should next year's capital budget be? O $57,875 $38,050 $31,100 $49,325