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BACKGROUND: Three companies need capital. Company A has a beta of 1.40. Company B has a beta of .85. Company C has a beta of

BACKGROUND:

Three companies need capital.

Company A has a beta of 1.40.

Company B has a beta of .85.

Company C has a beta of .50.

The yield on the 20-year Treasury bond is currently 2.5% and the return on the Market is 17%

REQUIRED:

Calculate the Cost or Equity (rE) for each company:

Based upon each company's beta, describe the company's relationship with the Market, assuming, for this question only, that the Market grew at 7% this year.

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