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9 December, 09:55

Adams Inc. has the following dа ta: rRF = 5.00%; RPM = 6.00%; and b = 1.05. What is the firm's cost of common from reinvested earnings based on the CAPM?

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  1. 9 December, 11:50
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    Risk-free rate (Rf) = 5.00%

    Beta (β) = 1.05

    Risk premium = 6.00%

    Ke = Rf + β (Rm - Rf)

    Ke = Rf + β (Risk premium)

    Cost of common stock (Ke) = ?

    Ke = 5 + 1.05 (6)

    Ke = 5 + 6.3

    Ke = 11.30%

    Explanation:

    The firm's cost of common stock equals risk-free rate plus beta multiplied by risk premium.
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