Use the table for the question(s) below.
Capital Structure and Unlevered Beta Estimates for Comparable Firms

-If the risk-free rate of interest is 6% and the market risk premium has historically averaged 5%,then the cost of capital for Oakley is closest to:
A) 9.1%
B) 10.2%
C) 13.5%
D) 14.7%

Question

Use the table for the question(s) below.
Capital Structure and Unlevered Beta Estimates for Comparable Firms
 
-If the risk-free rate of interest is 6% and the market risk premium has historically averaged 5%,then the cost of capital for Oakley is closest to:
A) 9.1% 
B) 10.2% 
C) 13.5% 
D) 14.7%

Quizplus · Accepted Answer

C) β_U = 11ea7e5a_6eee_51e0_9a0a_93aa2b5e758f_TB1623_11 β_E + 11ea7e5a_6eee_51e1_9a0a_17bf001e0647_TB1623_11 β_D₌_{1.00(1.50) + 0(0) = 1.50} r_wacc = r_f + b_U(r_M - r_f) r_Oakley = .06 + 1.50(.05) = .135 or 13.5%

Use the Table for the Question(s) Below