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Estimate the cost of equity capital and debt capital

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Question - Kiran, the divisional manager for defence electronics at BEL, is estimating the hurdle rate for a new project whose risk is on par with average risk of the company. The project is to be funded with Rs. 100 million debt capital and Rs. 200 million equity capital. The debt capital can be raised at 6% premium. To estimate the cost of equity, Kiran is considering the following information about comparable companies (pure plays).

Company name

Market value leverage

Levered equity beta

Bharat Defence Ltd

0.40

0.75

Malwa Electronics Ltd

0.60

1.20

You are required to estimate the cost of equity capital, the cost of debt capital and the hurdle rate for this project?

Reference no: EM133030726

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