The Following Information Relates to Questions 15

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%

QUESTION 15

Given the above data, Kinstons cost of equity is:

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