The Hudson Corporations common stock has a beta of 16 If the

The Hudson Corporation’s common stock has a beta of 1.6. If the risk-free rate is 4.7 percent and the expected return on the market is 13 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Cost of equity capital %

Solution

As per CAPM equation:

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Cost of equity = Risk free rate + Beta x (Expected return on market - Risk free rate)

Cost of equity = 4.7% + 1.6 x (13%-4.7%)

Cost of equity = 17.98%