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Calculate the cost of equity capital applicable to ABC

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Question - Company ABC is a new age medical fitness devices company. It has successfully moved through its early life cycle stages and now is well into its rapid growth stage. You are expected to calculate the cost of equity capital for an investment that your firm is contemplating in ABC.  

The long term interest rate on Indian Government Bonds is currently at 5.5 %. The typical premium of listed market securities return differential over the Government Bonds calculated over a 10 year period is 7.5%.

Companies in ABC's segment have a a beta of 1.5. In addition, according to your analysis an ill-liquidity premium of 0.5 % and a small cap premium of 1.0% is warranted. Given this information, calculate the cost of equity capital applicable to ABC.

Reference no: EM132972474

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