JKL Corporation, a company devoted primarily to paper products, is estimating the cost of equity appropriate for a vegetable processing plant it is planning to build. JKL currently has a debt ratio of 0.4 and believes this is also the appropriate debt ratio for the vegetable processing plant. A comparable vegetable processing firm has a beta of 0.7125 and a debt-to-equity ratio of 0.25. Assume a risk-free rate of 7%, a market risk premium of 11% and a tax rate of 25%.

a. JKLs estimated levered beta is

b. The cost of equity that JKL should use in this situation is