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Estimate of the cost of equity for arkansas lighting

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The Arkansas Lighting Company would like to estimate the cost of equity. They decide to use CAPM for the calculation. For the risk-free rate, they decide to use the interest rate on 10-Year U. S. Treasury securities. They note that over the recent past, the 10-Year interest rate on U.S. Treasury Securities has been around 1%. However, they estimate that the 10-Year rate will be around 3% in future years. They also decide to use an expected market risk premium of 5%. The corporate tax rate on company earnings is 25%, and the average yield to maturity on their debt outstanding is 8%. What would be an appropriate estimate of the cost of equity for Arkansas Lighting?

Reference no: EM132477781

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