CIMA Financial Strategy F3 Question # 54 Topic 6 Discussion

CIMA Financial Strategy F3 Question # 54 Topic 6 Discussion

F3 Exam Topic 6 Question 54 Discussion:
Question #: 54
Topic #: 6

Company A is unlisted and all-equity financed. It is trying to estimate its cost of equity. 

 

The following information relates to another company, Company B, which operates in the same industry as Company A and has similar business risk:

 

Equity beta = 1.6      

Debt:equity ratio  40:60

The rate of corporate income tax is 20%.

The expected premium on the market portfolio is 7% and the risk-free rate is 5%.

What is the estimated cost of equity for Company A?

 

Give your answer to one decimal place.

 

 ? % 


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