Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 11

Last year a Japanese engineering materials corpo­ration, Yamachi Inc., purchased some U.S. Trea­sury bonds that return an average of 4% per year. Now, Euro bonds are being purchased with a real­ized average return of 3.9% per year. The volatility factor of Yamachi stock last year was 1.10 and has increased this year to 1.18. Other publicly traded stocks in this same business are paying an average of 5.1% dividends per year. Determine the cost of equity capital for each year, and explain why the increase or decrease seems to have occurred.