Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

How to calculate cost of equity I would like to know how to calculate cost of equity. I have only the below information so far.

How to calculate cost of equity

I would like to know how to calculate cost of equity. I have only the below information so far.

Yield to maturity of debt : 8%

Market value of debt : $100 million

Number of shares of common stock : 10 million

Price per share of common stock : $30

WACC : 10.82%

Marginal tax rate : 35%

Also in comparison with similar companies, here is the debt to total capital ratios

Debt to total capital ratio (%) Cost of debt (%) Cost of equity (%)

20 7.7 12.5

30 8.4 13.0

40 9.3 14.0

50 10.4 16.0

Cost of equity formula should be rr + B + (E(rm-rr) but do not know which one is risk free rate, beta, and risk premium.

Or is there a different formula to be used for the cost of equity?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investing In Financial Research A Decision Making System For Better Results

Authors: Cheryl Strauss Einhorn, Tony Blair

1st Edition

1501732757, 9781501732751

More Books

Students also viewed these Finance questions