- Question 12 Jo Cox Decides To Check Whether Fred The Nerdy Banker Was Correct In Claiming That Geothermal S Cost Of Eq 1 (86.1 KiB) Viewed 43 times
Question 12 Jo Cox decides to check whether Fred, the nerdy banker, was correct in claiming that Geothermal's cost of equity is 14%. She estimates Geothermal's beta at 1.20. The risk-free interest rate is 6%, and the long-run average market risk premium is 7.6%. What is the expected rate of return on Geothermal's common stock, assuming of course that the CAPM is true? A. 5.88% B. 15.12% C. 7.84% D. 3.65% Question 13 Looking at Question 12, calculate Geothermal's weighted average cost of capital, assuming that 50% of Geothermal's capital structure is equity, and 50% of the company's capital structure is debt finance. The corporate tax rate is 30%. A. 9.66% B. 5.20% C. 3.21% D. 10.35%