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GenTech Inc., a biotechnology firm, had a beta of 1.70 in 2015. It had no debt outstanding at the end of that year. Assume that

GenTech Inc., a biotechnology firm, had a beta of 1.70 in 2015. It had no debt outstanding at the end of that year. Assume that the risk premium is 5.5 percent.

a)Estimate the cost of equity for GenTech if the Treasury bond rate is 6.4%.

b)What effect will a decrease in long-term bond rates to 5.3% have on the firm's cost of equity?

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