Economics · Financial Management
Aurelia Co, an all-equity financed business, is evaluating a potential project in a completely new line of activity. The company's current equity beta is 1.3. Harrow Co operates in this new business area with an equity beta of 1.5 and a debt / (debt + equity) ratio of 35%. The risk-free rate is 4%, and the market risk premium is 5%. Using the Capital Asset Pricing Model (CAPM) and ignoring taxation, what is the risk-adjusted cost of equity for this new project (to 1 decimal place)?
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