Elfwood Ltd. is funding its project with the same amount of debt and equity; thus, the debt-to-equity ratio is 1.00. The bond issued by Elfwood has $1000.00 par value, 8.00 percent semiannual coupon, 9.00 percent yield to maturity, and 15 years to maturity.

The common stocks of Elfwood are considered by investors to be somewhat riskier than its debt counterpart, therefore they require a 4.00 percent risk-premium on top of the return from Elfwood's bonds.

The market return and risk-free rate are estimated to be 13.00 percent and 4.00 percent respectively. Elfwood's beta is 1.20. What is Elfwood's cost of equity based on own-bond-yield-plus risk-premium method?

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To calculate Elfwood Ltds cost of equity based on the ownbondyieldplus riskpremium method we need to ... View the full answer