申論題

17. You are going to launch a new business which is estimated to generate pre-tax cash flow of $15,000 in the first year with a growth rate of 3% per annum. The corporate tax rate is 20%.

(i)To estimate the cost of capital, you survey the capital market and find that the average beta is 2 for all-equity firm in the similar industry as your new business. Under the risk-free rate of 1% and the market-portfolio return of 7%, please compute the cost of capital for your business if you want to finance the project by equity only. (3 points)