French company Arevia, S.A. currently has the following capital structure: 30% debt and 70% equity based on market values. Company?s equity beta based on its current level of debt financing is 1.2 and its debt beta is 0.2. Also, the risk free rate of interest is currently 2.75% on long-term government bonds. The company?s pre-tax cost of debt is 4.15%. Investment banker advised the firm that according to her estimates, the market risk premium is 7%. What is your estimate of the cost of equity capital for the company based on the CAPM?
Paper#4246 | Written in 18-Jul-2015Price : $25