Question
Calculate Ideko's unlevered cost of capital when Ideko's unlevered beta is 1.24, the risk-free rate of return is 4.78 percent and the expected market risk
Calculate Ideko's unlevered cost of capital when Ideko's unlevered beta is 1.24, the risk-free rate of return is 4.78 percent and the expected market risk premium is 6.12 percent. As a reference, the equity betas with confidence intervals along with capital structure and unlevered beta estimates for comparable firms are shown here,
Equity Betas Confidence Intervals for Comparable Firms
Monthly Returns 10-Day Returns
Firm Beta 95% C.I. Beta 95% C.I.
Oakley 1.99 1.20 to 2.80 1.37 0.90 to 1.90
Luxottica 0.56 0.00 to 1.10 0.86 0.50 to 1.20
Nike 0.48 -0.10 to 1.00 0.69 0.40 to 1.00
Capital Structure Unlevered Beta Estimates for Comparable Firms
E D
E+D E+D BE BD BU
Firm
Oakley 1.00 0.00 1.50 0.00 1.50
Luxottica 0.83 0.17 0.75 0.00 0.62
Nike 1.05 -0.05 0.60 0.00 0.63
The estimate of Ideko's unlevered cost of capital is ______%. (Round to two decimal places)
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