The total market value of the common stock of the Apple Company is $9 million, and the total value of its debt is $3 million. The treasurer estimates that the beta of the stock is currently 1.4 and that the expected risk premium on the market is 7%. The Treasury bill rate is 5%. Assume for simplicity that Apple Company debt is risk-free and the company does not pay tax.

(Please round to Two Decimal Places) a. What is the required return on the stock? (Sample Answer: 14.50%)

b. Estimate the company cost of capital.(Sample Answer: 14.50%)

c. Suppose the company wants to diversify into a noise reduction chip business. The beta of unleveraged noise reduction chip manufacturers is 1.8. What is the required return on the company's new venture.(Sample Answer: 14.50%)