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5. The cost of equity In financial analysts, it is important to select an appropriate discount rate. A project's discount rate must be high to
5. The cost of equity In financial analysts, it is important to select an appropriate discount rate. A project's discount rate must be high to compensate invectors fior the project: risk. The retum that shareholders require from the company as a compensation for their investment fock is refented to as the cost of equity. Consider this case: The Shoe Buiding lnci is a 100% equity-financed company (no debt or preferred stock); hence, iss whoc equals is cost of common equity. The Shoe Bulding Inc's retamed eamings wa be sufficent to fund its captal budget in the foresceable future, The compury has:a beti of 1.50 , the risk-free mite is 5.0%, and the market retuin is 6.5%. What is The Shoe Building Inc's cost of equity? 23.54% 2.32% 7.25% 9,82 \% investment next year: investment next year: next year's coptal budget be? $20,8$0$25,225$16,475$15,275
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