Prepare a table with the cost of capital (cost of equity) that you would calculate for the equity with the following estimates of the market risk premium.

4.5%

6.0%

6.5%

7.0%

A financial analyst gives Oracle Corp., the enterprise software and database management firm, a CAPM (Capital Asset Pricing Model) equity beta of 1.20. The risk-free rate is 4%.

The cost of equity under CAPM is calculated using the formula as follows:

Cost of Equity = E( ) = + beta_i { E( ) - }

where, : risk-free rate,

E( ) - : Market risk premium

beta_i : beta of individual firm i

Required: Prepare a table with the cost of capital (cost of equity) that you would calculate for the equity with the following estimates of the market risk premium.

4.5%

6.0%

6.5%

7.0%