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What is by-of-islands cost of capital

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Reference no: EM132524068

Bay-of-Islands Daires Ltd has an interest rate on its debt of 6 percent per annum. The systematic risk of its equity is 1.2 and the effective company tax rate is 0.12. Forty percent of its funding by debt and while 60 percent is provided by equity. The risk-free interest rate is 5 percent per annum. In calculating its cost of capital; Bay-of-Islands has obtained two expert opinions as to the market risk premium (including the franking premium). One expert suggests that market risk premium is 1 percent per annum, while the other suggest that that market risk premium is 5 percent per annum. What is By-of-Islands' cost of capital based these experts' opinion of the market risk premium.?

Reference no: EM132524068

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