Jana doesn’t plan to issue new shares of common stock. Using the CAPM approach, what is Jana's estimated cost of equity? (2 points)

The CAPM Approach

rs = Risk-free rate + (Market risk premium) (Beta)

rs = rRF + (RPM) bi (Note: RPM is the expected return on the market minus the risk-free rate.)

PROBLEM

Assuming the risk-free rate (i.e., the current yield on a long-term Treasury bond) equals 5.6%, the expected market risk premium is 6%, and the firm's beta is 1.2, what is the company's cost of equity from internal funds?

Risk-free rate (rRF)

5.6%

Expected market risk premium (RPM)

6%

Beta (bi)

1.2

Cost of Equity (rs)

???

rs =

rRF

+

(RPM) x

(bi)

= CAPM formula

rs = Cost of Equity

Answer rating: 100% (QA)

To calculate Janas estimated cost of equity using the CAPM approach you can use the follow... View the full answer