Tyke, Inc. is a chain retailer of children's tech toys. The CFO wants to estimate the cost of common equity. The beta for Tyke is .75. The 10-year Treasury bond rate is 2.32%. The CFO plans to use a market risk premium of 5%.
a. Estimate the cost of equity for Tyke.
b. If Tyke rearranges its financing, so that it is 100% equity financed, what is its beta coefficient?