Question
A firm has a capital structure of 100% equity. An analyst wants to estimate the current cost of capital for the firm. He has collected
A firm has a capital structure of 100% equity. An analyst wants to estimate the current cost of capital for the firm. He has collected some financial data shown in the table below:
| FINANCIAL INSTRUMENT | RETURN OR YIELD TO MATURITY |
|---|---|
| 90-day Treasury Bill | 1.20% |
| S&P 500 Market Index | 8.23% |
The beta for the firm is 1.50.
The firm is considering a capital budgeting project that will create a cash flow next year of $520,409.00. The project cash flows will grow by 4.00% each year for a 10.00-year period, and the cost of the project is $3,287,871.00 today.
What is an estimate for the current cost of capital?
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Entrepreneurial Finance
Authors: Philip J. Adelman, Alan M. Marks
4th Edition
0132434792, 9780132434799
