Fargo Cabinets is a small company and it isn't publicly traded, but Cathy wants to make sure that she understands the appropriate cost of equity. To analyze the risk of Fargo Cabinet's three divisions, she found 5 publicly traded companies in cabinets, commercial construction, home construction and do-it-yourself retail stores and the average beta was 1.20. She feels the average of these firms properly reflects her firm's blended business risk and the overall systematic risk given her capital structure. The expected return on the market regardless of the economic scenario is projected at 8.7%. The risk-free rate is 2.4%.

What is the cost of equity using the Capital Asset Pricing Model?

Answer rating: 100% (QA)

the capital asset pricing model CAPM evaluates if an ... View the full answer