Capital Asset Pricing Model (CAPM) Ke = RF + (Rm - RF) B Cost of Equity = Risk Free Rate + ( Market Risk) x Beta Premium X Beta Question #1 risk-free rate of return (rf): return on market portfolio (rm): firm-specific risk factor (B): 4% 14% 1.1 Estimate the return on common equity (ke) using the Capital Asset Pricing Model (CAPM). (round to two decimal points) WACO Weighted Average Cost of Capital W 16% 10% 12% Question #2 return on common equity (ke): return on long-term debt (ka): return on preferred stock (k.): tax rate: weight of common equity (we): weight of long-term debt (w.): weight of preferred stock (w.): 25% 40% 50% 10% Estimate the weighted average cost of capital (WACC). (round to two decimal points)