A. S Corporations common stock has a beta of 1.43. The interest rate on 10 year U.S. Treasury bonds is 2.96 percent. Assuming an average market risk premium of 5.0 percent, use the mean-variance capital asset pricing model to estimate the cost of existing common equity for S Corporation.

B. If a company has a beta of 1.52 and is considering a high risk project outside its normal course or business with a beta of 2.4, what beta should the company use? The 1.52 or the 2.4? Why?

C. A company is operating in three areas of the economy (sectors or industries) and the divisional betas are presented below: Beta Value Division A 2.75 $520,000 Division B .35 $830,000 What is the companys beta?