1. Given the above data, Kinstons cost of equity is:

   	a.	17%
   	b.	22.5%
   	c.	18.25%
   	d.	None of the above

Kinston Industries is a listed company in New York. Its current before interest after-tax operating cash flows is $200 million. The cash flows are expected to grow at 8% per annum over the next four years, after which the growth will fall to 4% per annum and stay at this rate forever. The following information is also available: Tax rate 40% Risk-free rate 5% Market return 12% Equity beta 2.5 Cost of debt 20% D/E 50%