You are trying to estimate the cost of equity for a privately owned railroad company called the
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You are trying to estimate the cost of equity for a privately owned railroad company called the Illinois-Pacific Railroad.You know that the company's cost of debt is 4% and its debt-to-enterprise value ratio is 30%. You have collected the following information on publicly traded railroads that are comparable. All of the comparable firms have no excess cash. You also know that the risk-free rate is 2% and the market risk premium in 5%. What is the best estimate for the cost of equity of the Illinois-Pacific Railroad? Select one.
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