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The Tubby Ball Corporation's common stock has

a beta of 1.15. If the risk-free rate is 5 percent and the expected return on the

market is 12 percent, what is Tubby Ball's cost of equity capital?

pur-new-sol

Computation of Cost of Equity Capital using CAPM:

Cost of Equity Capital = Risk-free Rate + Beta * Market Risk Premium

= 5% + 1.15*(12%-5%)

= 5% + 8.05%

Cost of Equity Capital = 13.05%

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