May i ask for help on this? Thank you in advance.
This question is asking for Cost of equity.
Project Beta 1.5
Risk free rate 3%
Market risk premium 8%
Country risk premium for China 2.6%
a - 18.9%
b- 14.40%
c- 10.40%
the answer key has 18.9% is correct.
but, what i calculated following the formula is 14.40%.
Ke = frf+B((Risk premium) - frf + CRP)
Ke= 0.03+1.5(0.08-0.03+0.026)
Ke= .1440
to get 18.9% i have to exclude 0.03 from risk premium. but if i do it according to formula is .1440.