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Cost of Capital

fmccrayfmccray OklahomaPosts: 24 Associate

May i ask for help on this? Thank you in advance.

This question is asking for Cost of equity.

Project Beta 1.5

Risk free rate 3%

Market risk premium 8%

Country risk premium for China 2.6%

a - 18.9%

b- 14.40%

c- 10.40%

the answer key has 18.9% is correct.

but, what i calculated following the formula is 14.40%.

Ke = frf+B((Risk premium) - frf + CRP)

Ke= 0.03+1.5(0.08-0.03+0.026)

Ke= .1440

to get 18.9% i have to exclude 0.03 from risk premium. but if i do it according to formula is .1440.


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