What is the equity cost of capital, given the below data:-

Global Stone is valuing its subsidiary, Mason International. It will use the Capital Asset Pricing Model (CAPM) to calculate the equity cost of capital and WACC. Mason is not a small company. What is the equity cost of capital, 

given the following data:-

R_f = Risk-free rate of return                                                                                                        1%

R_D = Interest rate on company debt                                                                                           4%

β = Beta representing level of non‑diversifiable risk associated with the company’s return                 1.4

rp_gm = Equity risk premium – general market                                                                             5%

Rp_sc = Equity risk premium – small company                                                                             4%

α = Unsystematic risk factor                                                                                                       Zero

D/E = Debt/Equity ratio (market)                                                                                                 1:1

Τ_c = Tax rate                                                                                                                             21%

Τ_a = Time period for amortization of intangibles                                                                         40 yrs

Group of answer choices

8.575%

6.5%

8%

10%

Answer rating: 100% (QA)

Answer is as follows Correct Option 8 ... View the full answer