Problem:
Cost of reinvested profits and new common shares - CAPM
Using the data for each firm shown in the following table, calculate the cost of reinvested profits and new common shares using the CAPM.
P0 Rf Market Total of
Firm Beta Current Risk-free Risk discount &
Market Price rate Premium floatation costs
1 0.84 $15.40 3.20% 4.80% $1.12
2 1.46 $9.65 4.10% 6.10% $0.78
3 1.12 $32.10 6.60% 5.60% $2.94
4 0.61 $25.00 2.80% 5.80% $2.41