Question #11

Reading: Reading 17 Cost of Capital - Advanced Topics

PDF File: Reading 17 Cost of Capital - Advanced Topics.pdf

Page: 5

Status: Unattempted

Part of Context Group: Q11-13 First in Group
Shared Context
- Helsevesen's cost of common equity using the CAPM is closest to: A) 12.3%. B) 10.3%. C) 8.3%.
Question
Helsevesen's cost of common equity using the Fama-French five-factor model is closest to:
Answer Choices:
A. 10.3%
B. 12.3%
C. 8.3%
Explanation
Helsevesen's estimated cost of common equity using the Fama-French five-factor model can be calculated as follows: re = rf + β1(ERP) + β2SMB + β3HML + β4RMW + β5CMA re = 0.034 + 1.40(0.035) + 0.85(0.018) + 0.65(0.015) + 0.15(0.016) + 0.60(0.021) = 0.1231, or 12.3%.
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