Question: DeAndre Hunter Enterprises has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent and

DeAndre Hunter Enterprises has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent and the expected return on the market is 14 percent. The firm is financed with $120,000,000 of common shares (market value) and $80,000,000 of debt, and 35 percent is the marginal tax rate.

The firm has semiannual bonds outstanding with nine years to maturity and are currently priced at $754.08. The bonds have a coupon rate of 7.25 percent. The face value on a bond is $1,000. The firm will invest $300,000 in a five-year project today that will produce annual cash flows of $80,000.

What is the cost of equity for the firm?

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