The Abacus Computer Company Has Decided to Use the Capital

question 52

Essay

The Abacus Computer Company has decided to use the Capital Asset Pricing Model to estimate its cost of equity.The firm's beta was estimated at 1.4.The S&P/TSX Composite-stock index has returned 12.5% to investors over a fairly long period of time,and Abacus has decided to use this value as the market return.Treasury bills are currently providing investors with a 6.5% yield.
A)Calculate Abacus's cost of equity using the CAPM.
B)If its beta was incorrectly estimated,and a new revised estimate of 1.8 was used in the calculations,what would its new estimate of the cost of equity be?

• A)Calculate Abacus's cost of equity using the CAPM.
• B)If its beta was incorrectly estimated,and a new revised estimate of 1.8 was used in the calculations,what would its new estimate of the cost of equity be?

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