Hoolahan Corporation's common stock has a beta of 1

Finance Oct 20, 2020

Hoolahan Corporation's common stock has a beta of 1.18. Assume the risk-free rate is 5.3 percent and the expected return on the market is 12.8 percent.

What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expert Solution

Computation of the cost of equity capital:-

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

= 5.3% + 1.18 * (12.8% - 5.3%)

= 5.3% + (1.18 * 7.5%)

= 5.3% + 8.85%

= 14.15%

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