Scanlon Incs CFO hired you as a consultant to help her estim

Scanlon Inc\'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: rRF 4.1 0.70. Based on the CAPM approach, what is the cost of equity from retained earnings? 0%; RPM 5.25%; and b-

Solution

cost of equity = Rf + [Beta *RPM]

                   = 4.1 + [.7*5.25]

                    = 4.1 + 3.675

                    = 7.775 or 7.78%    [rounded to 7.78%]

correctoption is \" E\"