Your employer, Saskatoon Building Associates (SBA), is planning a condominium project in downtown Saskatoon, code named...
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Your employer, Saskatoon Building Associates (SBA), is planning a condominium project in downtown Saskatoon, code named Block1. The manager asked you to estimate the cost of equity capital for this project. You find Ace Construction Group (ACG), a firm that specializes in building condominium projects in Saskatoon. From market data you estimate ACG's required return on equity to be 18%, the risk free rate to be 3%, and the expected return on the TSX (the market) is 10.5%. From the financial statements, you discover that ACG has a debt to total asset ratio of 0.75. However, your plans are to finance Block 1 using a debt to total asset ratio of 0.60. What should be your estimate of the cost of equity capital for Block 1? (6 marks) Your employer, Saskatoon Building Associates (SBA), is planning a condominium project in downtown Saskatoon, code named Block1. The manager asked you to estimate the cost of equity capital for this project. You find Ace Construction Group (ACG), a firm that specializes in building condominium projects in Saskatoon. From market data you estimate ACG's required return on equity to be 18%, the risk free rate to be 3%, and the expected return on the TSX (the market) is 10.5%. From the financial statements, you discover that ACG has a debt to total asset ratio of 0.75. However, your plans are to finance Block 1 using a debt to total asset ratio of 0.60. What should be your estimate of the cost of equity capital for Block 1? (6 marks)
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Heres how to estimate the cost of equity capital for Block1 1 Calculate the risk premium for ACG Ris... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 978-0176517304
2nd Canadian edition
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
Posted Date:
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