Halestorm Corporations common stock has a beta of 128 Assume

Halestorm Corporation’s common stock has a beta of 1.28. Assume the risk-free rate is 5.3 percent and the expected return on the market is 12.8 percent.

Required: What is the company’s cost of equity capital?

Solution

Expected Return = Rf + B(Rm-Rf) Expected Return = 5.3 + 1.28(12.8-5.3) Cost of Equity Capital=14.9 % Rf= Risk Free Rate = 5.3 % B=Beta=1.28 Rm= Market Return= 12.8 %