You work for Microsoft Corporation (ticker: MSFT), and you are considering whether to develop a new software product. The risk of the investment is the same as the risk of the company.

a. Using the data in Table 13.1, EB, and in the table, EB , calculate the cost of capital using the FFC factor specification if the current risk-free rate is 2.8% per year.

b. Microsoft's CAPM beta over the same time period was 0.91. What cost of capital would you estimate using the CAPM?

a. Using the data in Table 13.1, B, and in the table, FIB, calculate the cost of capital using the FC factor specification if the current risk-free rate is 2.8% per year.

The cost of capital using the FC factor specification is

%. (Round to two decimal places.)

Data table

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Factor Portfolio

FFC Portfolio Average Monthly Returns, 1927-2018

Average Monthly Return (%)

95% Confidence Band (%)

MKT-r.

0.63

+ 0.32

SMB

0 19

HML

PR1YR

0 36

0.64

+ 0.19

0.21

+ 028

Data table

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Factor

MKT

SMR

HMI

PR1YR

Estimated Factor Betas. 2007-2017

MSFT

XOM

1.07

0.66

- 067

- 0 38

- 0 03

0 17

0.02

021

GE

127

- 029

0 78

- 017

b. Microsofts CAPM beta over the same time period was 0.91 . What cost of captal wods you eutimute using tha CAPM? The cost of capital using the FFC factor specification is W. (Rlound to two decimal places) Data table (Click on the followhy ieon 0 in onder to eopy its coetients into a spreaditioed) Data table (Cick on the folowing icen or in crder bo coor ts coetenta into a spreatureat)