Estimating the Cost of Equity Capital

billion. Its fiscal $2015$ interest expense was $$227$ million, and its assumed statutory tax rate was $37\%.$

Kellogg has an estimated market beta of $0\mathrm{.}60.$ Assume that the expected risk$-$free rate is $2\mathrm{.}5\%$ and the expected market premium is $5\%.$

a$.$ What does Kellogg's market beta imply about its stock returns?

$4$ beta of $0\mathrm{.}60$ indicates Kellogg's stock is less volatile than the market index.

A beta of $0\mathrm{.}60$ indicates Kellogg's stock is more volatile than the market index.

$4$ beta of $0\mathrm{.}60$ indicates Kellogg's stock moves perfectly with the market index.

b$.$ Estimate Kellogg's cost of equity capital.

Round answer to one decimal place $($ex: $0\mathrm{.}0245=2\mathrm{.}5\%).$

$36$