Question

Gnome Capital a Canadian consortium has a foreign project with a beta of 1.18, risk-free return of 13.2 percent and the market’s required return of 20.15 percent. Calculate the cost of equity for the project.

Answer 1

We can use Capital Asset Pricing Model (CAPM) to find the cost of equity.

Where,
k_e = Cost of equity
R_f = Risk-free rate
R_m = Market rate
= Beta

Substituting the values, we get:

OR