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John Art Photo would have an equity beta of 1.25 if it was all equity financed. The market value information for the company is shown

John Art Photo would have an equity beta of 1.25 if it was all equity financed.

The market value information for the company is shown here:

Market Value

Debt

1, 400, 000

Equity

2, 600, 000

The expected return on the market portfolio is 12.40 per cent, and the risk free rate is 5.3 per cent. The company is subject to a corporate tax rate of 28 percent. Assume the beta of the debt is zero.

What is Johns unlevered cost of equity capital? What is the required rate of return on the companys equity?

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