Question: You are tasked with estimating the cost of capital for a firm. The risk-free rate is 4.2%, the expected rate of return on the market

You are tasked with estimating the cost of capital for a firm. The risk-free rate is 4.2%, the expected rate of return on the market is 14.7%. Now, another similar company (similar unlevered cost of capital) has a debt-to-equity ratio of 1 to 3. It has a debt beta near zero and an equity market-beta of 0.9. Your own firm has more debt, for a debt-to-equity ratio of 1 to 1, with a debt beta of 0.4. What is a good estimate for your equity cost of capital?

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