The Allegheny Valley Power Company common stock has a beta of 0.80. If the current risk-free rate is 6.5% and the expected return on the stock market as a whole is 16%,
Required:
Question: Determine the cost of equity capital for the firm (using the CAPM).
a. 14.1%
b. 7.6%
c. 6.5%
d. 13.0%
Note: Explain all steps comprehensively.