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 | 1.10% |
| S&P 500 Market Index | 7.01% |
The beta for the firm is 1.44.
The firm is considering a capital budgeting project that will create a cash flow next year of $486,160.00. The project cash flows will grow by 5.00% each year for a 11.00-year period, and the cost of the project is $3,457,133.00 today.
What is an estimate for the current cost of capital?Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))
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